Management Accounting: Importance, Systems, and Budgets

Management
Accounting

TABLE OF CONTENT
INTRODUCTION..............................................................................................................................................3
TASK 1..............................................................................................................................................................3
P1 (i) What is management accounting. Differentiate between management accounting and financial accounting....3
(ii) Importance of management accounting information as a decision making tool....................................................4
P2 Describe the systems of management accounting..................................................................................................4
TASK 2..............................................................................................................................................................5
P2 (i) Income statement under marginal costing........................................................................................................5
(ii) Income statement of absorption costing.................................................................................................................5
TASK 3..............................................................................................................................................................6
P4 (a) What are the types of budgets and their advantages and disadvantages............................................................6
(b) The process of preparing budgets..........................................................................................................................6
(c) Explains what are pricing strategies.......................................................................................................................7
TASK 4..............................................................................................................................................................7
P5 (i) What is balanced scorecard and how can be used to identify the financial problems.......................................7
(ii) How it can be used to improve financial governance and development of effective strategies..............................8
CONCLUSION..................................................................................................................................................8
REFERENCES...................................................................................................................................................9

INTRODUCTION
Management accounting is a combination of finance and management, that includes business tools
and techniques, it also added the real values of any business organisation. It helps managers in order to take
financial and non-financial decisions. The practice of management is extends in three areas, such are as: -
Strategic management, risk management and performance management. There is a huge difference in
management accounting and financial accounting; management accounting is being focused on overall
activities of the company. Although financial accounting is relates with providing details regarding products,
divisional, operations, plans and individual activities. Management accountants are able to work across the
organization, they are working not only just in finance but also in articulating business strategies & policies,
implications of big financial decisions or monitoring risk (Ward, 2012). The information is provided by
financial managers is helpful in developing dynamic solutions in order to improve business. Management
accounting is helpful in making budgets and collects information regarding cash inflow, outstanding debts
and revenues. On the other hand, financial management procedures, the useful data and information that is
related with other business functions ie. Department managers. The responsibilities of these accountants is
to providing comprehensive data of planning and forecasting, mentoring and reviewing cost inherent and
performing variance analysis.
TASK 1
P1 (i) What is management accounting. Differentiate between management accounting and financial
accounting.
Management is the process of creating management accounts and reports that is helpful in providing
exact and timely financial as well as statistical information to the managers in orders to take day to day or
short term decisions. It involves the tools and techniques of financial management that are helpful in
formulating strategies and policies. The reports of management accounting that are only useful for internal
environment, and they are confidential. In Imda Tech Limited, management accounting is helpful in analysis
the corporate as well as competitive environment, evaluate strategic options. It reviewing risk control and
evaluate auditing by which managers can easily make financial strategies. It is able to communicate
effective and gives suggestions on product developments and manufacturing (Kaplan and Atkinson, 2015).
Management accounting manages the price and cost for competitive advantage and is able to set up or
executes projects. It is helpful in reduces risk and uncertainties in organisation by applied forecasting
theories. It is assistive in evaluation of overall business environment, internal as well as external
environment by calculating capital expenditures.
Difference between Financial accounting and management accounting:-
Financial Accounting Management accounting
Financial accounting is concerned with prepare the
financial reports and statements of outsiders, such
as:- creditors, investors, suppliers, stakeholders,
customers and lenders.
Management accounting is also known as
managerial accounting, and it is the accounting that
helps managers in order to formulate strategies,
planning, forecasting and policies.
It is based on various principles, assumptions
and convention like consistency, realisation,
matching, materiality and going concern etc
(Burritt, Schaltegger. and Zvezdov, 2011.).
It is able to provide both quantitative and qualitative
information’s and data as well that is being assessed
and captured by accounting managers.
The statements of financial accounting are made for
one financial year that enables financials positions,
performance and profitability of the company.
It is answerable for day to day and short term
financial decisions that can be helpful for internal
uses only.
The format of financial accounting is specified and
provides only monetary information as well
It’s format is non-specified and its provide both
monetary as well as non-monetary information to the

managers.
(ii) Importance of management accounting information as a decision making tool.
The significance of management as decision making tool, it is helpful in providing needed data
whether the organisation is in profit or loss. Management accounting information is helpful for making
decisions that short term or as well as long term also (Parker, 2012). In Imda Tech Limited, it is working as
a powerful tool that makes business more successful. The information is used by managers to determines
that what product to be sold and how to sell it. Meanwhile it is helpful in relevant cost analysis, activity
based analysis and make or buy decisions of the company .
P2 Describe the systems of management accounting
There four main systems of management accounting, which are as follows:-
 Cost accounting system: - This system is also known as costing system or product costing system. It
is used a framework in order to estimate the price of their products for cost control, profitability
analysis and inventory valuation. Cost accounting is procedure of summarising, allocating,
classifying, analysing, collecting and recording the alternative course of action that are helpful in
controlling costs (Otley and Emmanuel, 2013). In standard costing method, all production cost are
applied or charged to the charged for the inventory by using standard prices and cost. In normal
costing is uses historical methods of costing, in that overhead is charged or applied by the inventory,
and in actual costing method a new type of product process that can be used as inventory.
 Inventory management system :- The system is helpful in manages stock and inventory of the
business organisations. It is able to deals with when order to and how order to. The main aim of
inventory cost accounting is to minimize the inventory cost in order to generate high returns. If Imda
Tech, hold more than the average level of stock, it is an substantial opportunity cost because the
investments are tied up in these inventories. There are some explicit costs that holding inventory,
such are as:- insurance cost and standard cost. Basically, it is an on-going process of moving
products and parts into and out from organisation’s location. Many companies manage their on daily
basis so they can easily place new orders and projects.
 Job costing system :- Job costing system is the procedure of accruing information about the price is
associated with a specific production or job (Granlund, 2011). The information is helpful in
determining the correctness of a company's evaluation system, that is able to quote cost that allow for
a reasonable profit.
 Price optimising system :- In that system, the price of the product is assessed, means it involves on
which price product will be sell out in market or what is its wholesale rate.
M1
Management accounting is helpful in providing the financial data and records to the managers, so
that they can easily use it at the time of needed. It is also helpful in reduces expenses by reviewing the cost
of economic resources and other business operations and activities. It also improves cash flow of the
company by making annual budgets.
D1
Management accounting and reporting is a system by organisations can easily evaluate their financial
as well as corporate performance. It is related with day to day accounting operation and assistive in making
short term decisions. It collects all the financial statements and reports by company can able to assess its
financial performance and position in market.