Management Accounting and its Comparison with Financial Accounting

This article provides an overview of management accounting and its comparison with financial accounting. It discusses the different methods of management accounting reports and their significance. It also evaluates the advantages and disadvantages of budgetary control planning tools. Suitable for students studying management or accounting.

Management
accounting

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
P1. Defining management accounting and its comparison with different systems and financial
accounting....................................................................................................................................1
P2 Description of different methods of management accounting reports:..................................3
TASK 2............................................................................................................................................4
P3. Preparing income statement with the help of different aspects that possess a lot of value in
the current scenario......................................................................................................................4
TASK 3............................................................................................................................................7
P4: Evaluation of advantages as well as disadvantages of budgetary control planning tools:....7
TASK 4............................................................................................................................................8
P5 Comparison of management system adoption by businesses for responding financial
problems:.....................................................................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Management accounting means managing the most important aspect of a firm that is
accounting which is regarded as an integral part of every business (Bourmistrov, Grossi and
Haldma, 2019). It is a process in which an identification of different factors are done in order to
help the organisation to sustain in the market for a much longer period of time as compared to its
competitors that are prevailing in the similar market conditions. Capital Joinery Limited is a firm
that deals in windows, doors, and stairs is geographically located in the UK and is operational
since 2008 and is doing a pretty good job in the market too. In this report there is a brief
discussion of management accounting and other aspects that are closely relate with it which
possess a lot of important for the above mentioned firm. Apart from that the report also included
different tools of budgetary control, costing system, its advantages as well as disadvantages, etc.
Further in this report there is an evaluation of Capital Joinery Limited with its competitors in an
effective manner.
P1. Defining management accounting and its comparison with different systems and financial
accounting
Management accounting is referred to as a process of identification of different factors
that both directly or indirectly affects and impacts the working of the firm so that appropriate
rectification measures can be taken according to the needs, requirements, and demand of the
enterprise. These factors possess a lot of importance in the current market scenario as they
carriers the potential to substantially improve the condition so the firm in the long run if
identified in a correct manner. Capital Joinery Limited is a company that is established not a long
ago but with the help of many aspects that are directly related with the working of the business it
has captured a larger share in the market as compared to its rivals and that too within a short
period of time. There is another aspect that is financial accounting which is also carriers a lot of
importance and its comparison with management accounting has been done below with the
context of the above discussed firm-
Management accounting Financial accounting
 It is a type of accounting that is not
compulsory in nature and a firm adopts
it by its own choice. Capital Joinery
 It is an accounting method that is
compulsory in nature and has to be
maintained by specific firms. Capital

Limited uses it as it has proved very
beneficial for the firm in increasing its
profit volume within a limited period of
time (Cockcroft and Russell, 2018).
 It is done for internal analysis and
Capital Joinery Limited does it in an
impactful manner so that it can add to
the value of the firm in the industry in
which it operates.
Joinery Limited is a company that puts
a lot of focus on this aspect as it is
capable of improving the performing of
the firm in the long run.
 It is done for external purpose and
Capital Joinery Limited does it so as to
maintain a consistent image in the
market which helps it in improving its
performance.
There are a number of management accounting systems that are given below briefly-
Cost-accounting system- It is a system that is related with cost and other similar aspects
as it carriers a lot of value for each and every firm that is operating in the industry. Capital
Joinery Limited does a detailed research, analysis and evaluation of these factors so that it can
reduce unnecessary expenses so as to improve the performance of the company.
Inventory management system- It is a system that deals in managing the inventories
that a firm possesses. Capital Joinery Limited has an improved supply chain that proves
beneficial for it in this regard as it helps in managing inventories in an accurate manner.
Job-costing system- This system deals in allocation of funds according to the job so that
it can result in full utilisation of the resources available. Capital Joinery Limited recruits special
team to do all the research work and allocate the resources according to the information that is
given by that team (Daferighe, 2019).
Price-optimising system- This system deals in striking a balance between catering the
needs of the customers and earning profits. Capital Joinery Limited is profitable since its
establishment because it has opted for a price that suits both buyer and the organisation.
Also there are various other aspects too that are explained below in detail-
 Management style- There are different management styles prevailing in the industry and
Capital Joinery Limited must adopt a suitable one so that it can add to the value of the
firm in the long run.
 Organisation structure- To maintain an intact structure of organisation is very
important as well as crucial and the above mentioned firm gives a lot of value to this
aspect.

P2 Description of different methods of management accounting reports:
Management accounting reports can be explained as a technique of business management
tool which records financial transactions of an organization. It helps in providing information
related to finance in relation to daily operations of Capital Joinery with motive of improving
their short as well as long term financial decision making. Such information is vital for internal
stakeholders as it pertains improvement in sustainability of business. There are different types
reports of management accounting which are further described below:
Performance report: This report indicates evaluation of performance of business. It
provides overview or outline regarding performance of various departments in business. It states
performances of activities of Capital Joinery and therefore helps in enhancement of enterprise
management which helps in development of business. Tracking and recoding performance of an
organization is important for evaluation of productive as well as unproductive areas for
improvisation of business efficiency (Ejiogu and Ejiogu, 2018).
 Budget report: This report of managerial accounting is vital for measurement of
company’s performance and it is also helpful for managers of business to evaluate costs
that are incurred in Capital Joinery along with revenues generated by it. This helps in
evaluation of prior expenditure of an enterprise which is helpful in enabling managers for
adequate estimation of expenditures as well as income for future period of time.
 Inventory management report: Management of stock is essential for company for the
purpose of effective analysis of its expenses in relevance to management of inventory.
Therefore, Capital Joinery prepares stock management or inventory management report
with the motive of evaluation of stock’s position which enables business to manage or
monitor availability of inventory for the purpose of maintaining smooth or fluent
operations in an enterprise(van Helden, 2016).
 Accounts receivable aging report: Focus of accounts receivable report is on receiving
payment from credit incorporated by an organization. Preparation of such report is for the
purpose of recording all receivables of Capital Joinery for receiving payment from
debtors of company. It is helpful for managers for elimination of high period incorporated
in receiving amount from debtors. Reason is that high receivable period leads to high risk
involvement in company which serves as a negative factor for business as their chances
of bad debt increases and issue of insufficient cash flow arises. Along with it,

involvement of high risk ultimately reduces credit worthiness of an organization which
can be eliminated by preparing report of accounts receivables (Ghanem and Sulaiman,
2016).
TASK 2
P3. Preparing income statement with the help of different aspects that possess a lot of value in
the current scenario
There are a number of different costs that are prevailing in the present time and the ones
that are most commonly by different firms are discussed below in detail-
Fixed cost- It is a cost that remains fixed whether there is increase or decrease in the
value of output and remains constant throughout. Capital joinery Limited operates at a low fixed
cost that enables it to earn more profits in the long run.
Variable cost- It is a cost that changes with the change in output of the firm. Capital
joinery Limited produces a large number of quantities which subsequently reduces it’s per unit
cost that makes the firm more profitable in the long run.
Semi-variable cost- These are costs that include some part of fixed and some part of
variable cost while the fixed part remains fixed and variable part changes with the change in
output. Capital joinery Limited has a lot semi-variable cost that enables it to sustain in the market
for a longer period of time as compared to its rivals.
Absorption costing- It includes all types of costs which are incurred while operating like
wages, rent, etc.
Marginal costing- It includes cost which are levied on the firm to produce an extra unit
of output in the market. It is the reason of change in total cost (Holzer and Schoenfeld, 2019).
Marginal costing-
Particulars May June
Sales 25000 20000
- Marginal cost of sales
Variable sales commission 500 400
Variable manufacturing cost 2000 1600
Direct material 6000 4800
Direct labour 4000 3200

Total marginal cost of sales 4500 3600
Contribution 20500 16400
- Fixed cost
Fixed selling 1000 1000
Fixed production overhead 2000 2000
Fixed administration 3000 3000
Net profit 14500 10400
Absorption costing-
Particulars May June
Sales 25000 20000
-Marginal cost of sales
Variable sales commission 500 400
Variable manufacturing cost 2000 1600
Fixed selling 1000 1000
Fixed administration 3000 3000
Direct material 6000 4800
Direct labour 4000 3200
Total marginal cost of sales 16500 14000
Gross profit 8500 6000
-Fixed production overhead 2000 2000
Net profit 6500 4000
Reconciliation statement-
Particulars May June
Profit/ loss under absorption costing 6500 4000
Add/less closing stock 8000 6400
Profit/loss under marginal costing 14500 10400
Profit/loss under marginal costing 14500 10400
Working note-
Particulars Amount
Material cost variance
Standard cost 24000

Actual cost 22400
Result 1600
Material price variance
Standard price 12
Actual price 9.3
Actual quantity 1000
Result 2700
Material usage variance
Standard quantity 2000
Actual quantity 2400
Standard price 12
Result -4800
Last in first out (LIFO)
DATE Receipt Issue Balance
Quantity
Unit
cost
Amoun
t
Quantit
y
Unit
cost
Amoun
t
Quantit
y
Unit
cost
Amoun
t
01/06/20 10 35 350
01/06/09 15 38 570 15 38 570
01/06/15 12 38 456 3 38 114
10 35 350
01/06/20 10 32 320 3 38 114
10 35 350
10 32 320
01/06/23 10 32 320 3 38 114
10 35 350
01/06/27 3 35 105 3 38 114
7 35 245
01/06/30 2 35 70 3 38 114
5 35 175
27 951 8 289

Average cost (AVCO)
DATE Receipt Issue Balance
Quantity
Unit
cost
Amoun
t
Quantit
y
Unit
cost
Amoun
t
Quantit
y
Unit
cost
Amoun
t
01/06/20 10 35 350
01/06/09 15 38 570 25 36.5 912.5
01/06/15 12 36.5 438 13 36.5 474.5
01/06/20 10 32 320 23 34.25 787.75
01/06/23 10 34.25 342.5 13 34.25 445.25
01/06/27 3 34.25 102.75 10 34.25 342.5
01/06/30 2 34.25 68.5 8 34.25 274
TASK 3
P4: Evaluation of advantages as well as disadvantages of budgetary control planning tools:
Budget can be elaborated as method of financial plan which is applied by an organization
with the motive of optimum utilisation of its resources. This is vital for managers for the
purpose of making sure that business pertains ability for formulation of budgets in an effective
manner. With intention of taking control over the procedure of budget making, management of
Capital Joinery pertains attention on budgetary control. Fund overspending is sometimes ignored
by an organization, this process of budgetary control facilitates control over it. Different types of
planning tool which is utilised by management of Capital Joinery with intention of carrying
business activities in a systematic manner. Following are some planning tools in relevance to
budgetary control activities:
Cash Budget: This budget entitles information in detailed manner in relation cash inflow as
well as cash outflow, which is recorded for purpose of determining actual availability of funds in
relation to operational activities. In context to Capital Joinery, it is estimated by managers for the
purpose recording information related to payments or receipts which are cash based (Hrasky and
Jones, 2016). By application of this budgetary tool, management tries to evaluate liquidity of an
organization for effectively assign fund to various activities of business. Advantages and
disadvantages of cash budget are described below:

 Advantages: By application of this technique, business can evaluate availability of cash
in an organization. This budget type helps in analysing all incomes as well as expenses
ofCapital Joinery which are in cash form.
 Disadvantages: Recorded information of cash budget is historic and it pertains effect on
accuracy of results. Originality of such budget type lacks and reason is that most
businesses are utilising transactions on the basis of credit instead of cash basis.
Zero based budget: This can be explained as that budget which is applied by an
organization for the purpose of determining exact or actual information in relation to
transactions for current period of time because it is started with zero base and information is
kept for a year only. Managing team of Capital Joinery formulates this budget type with
intention of evaluating accurate business position. Managers need to justify every expense as
well as income which is recorded in this budget as it accurately formulates budget. Some
major advantages as well as disadvantages of zero-based budget are explained below:
 Advantages: With application of this budget, managers can determine information
regarding all operations of Capital Joinery which is essential for management team to
evaluate accurate financial position of business during particular period of time. It
increases level of involvement of staff members in an organization, reason is that zero
based budget provides information regarding employees of an enterprise in detailed
manner (Isaac Roque and Cañizares Roig, 2019).
 Disadvantages: The procedure of estimating this budget is a critical task and high
experienced manager is required for the purpose of formulating it. High cost is incurred
in Capital Joinery for formulation of this kind of budget.
TASK 4
P5 Comparison of management system adoption by businesses for responding financial
problems:
Financial problems: It can be described as problem that can be faced by business because
of incapability of an organization in monitoring business activities in relation to finance. These
problems serve as a hindrance in improvement of profitability of Capital Joinery. Therefore, it is
required by an organization to eliminate by management for enhancing efficiency of business. In
context to business, problems in regard to finance are described below:

 Insufficient cash flow: Problems in relevance to cash flow states incapability of an
organization in maintenance of liquidity for daily operations of an enterprise. In addition
to it, payment related problems lead to hindrance in payment of short-term loans.
 High storage costs: High expense of storing refers to that expense which company bears
in storage of inventory of an organization. It ultimately leads to improvement of overall
expenses of an organization; therefore, profitability and productivity of an enterprise
reduces (Lutilsky, Liović and Marković, 2018).
Various techniques of monitoring can be used by management of an organization for the
purpose of identification and evaluation of issues in relevance to finance. Some of such
techniques are described below in addition to its application in identification of problems:
 Key performance indicator: KPI or key performance indicator can be determined as
that process which company utilises for the purpose of analysing its progress towards
achievement of results. This indicator of performance is basically of two types, which
are, non-financial as well as financial key performance indicator. Financial key
performance indicator is a helpful too for evaluation of company’s financial performance
(Reizinger-Ducsai, 2018).
 Benchmarking: It can be explained as process of comparison between policies of
businesses and procedure of its activity for the purpose of evaluating results of business
and comparison of it by standards which are set by management. Application of this tool
of monitoring, business can evaluate problems regarding management of cash flow.
 Financial governance: It can be defined as a procedure of monitoring and collecting
information of financial transaction of company. It indicates process of tracking of
financial related performance of an organization which ensures management implication
for controlling problematic areas of financial and gaining profitability as well as expertise
in relevance to business operations (Rogošić and Perica, 2016).
TESCO MORRISONS
Financial problem faced by Tesco is that
company fails in management of cash flow.
For the purpose of solving this issue job
costing system is best suited as it helps
business in tracking expense of business in
Over expenditure is a problem related to
finance which is face by Morrisons. For
solving this problem management can
apply cost accounting system. It records al
cash expenses of business. Hence,

context to various activities or job
(Rückeshäuser, 2017).
management can apply cost control
measures accordingly.
Problem of mismanagement of stock can be
solved by utilising inventory management
system. Reason is that, system of inventory
management monitors situation of
inventory which helps in reducing extra
costs of storing inventory.
High price of business product is another
financial problem faced by Morrisons
which can be solved by using price
optimisation system as it monitors
customer demand in context to price
(Sundvik, 2019).
CONCLUSION
On the basis of this report it can be concluded that management accounting refers to
effective technique as it overviews position of finance in an organization. Therefore, system of
management accounting helps in tracking financial transactions which guides management un
making effective decision. There are various methods of management accounting reports. In
addition to it, planning tools of budgetary control entitles several advantages and disadvantages.
Lastly, financial problem can be solved by using management accounting.

REFERENCES
Books and journals
Bourmistrov, A., Grossi, G. and Haldma, T., 2019. Special issue on accounting and performance
management innovations in public sector organizations. Baltic Journal of Management.
Cockcroft, S. and Russell, M., 2018. Big data opportunities for accounting and finance practice
and research. Australian Accounting Review. 28(3). pp.323-333.
Daferighe, E. E., 2019. The Evolving Dimensions Of The Accounting Profession And The 21st
Century Expectations. Archives of Business Research. 7(5). pp.226-232.
Ejiogu, A. R. and Ejiogu, C., 2018. Translation in the “contact zone” between accounting and
human resource management. Accounting, Auditing & Accountability Journal.
Ghanem, N. and Sulaiman, S., 2016. Management accounting system, information quality and
organizational performance: evidence from Libya. Asia-Pacific Management
Accounting Journal (APMAJ). 11(2). pp.1-23.
Holzer, H. P. and Schoenfeld, H. M. eds., 2019. Managerial accounting and analysis in
multinational enterprises. Walter de Gruyter GmbH & Co KG.
Hrasky, S. and Jones, M., 2016, December. Lake Pedder: Accounting, environmental decision-
making, nature and impression management. In Accounting forum (Vol. 40, No. 4, pp.
285-299). No longer published by Elsevier.
Isaac Roque, D. and Cañizares Roig, M., 2019. ¿ Cómo vincular la información que brinda la
contabilidad de gestión ambiental con los proyectos de inversión?(How to Link the
Information Provided by Environmental Management Accounting With Investment
Projects?). How to Link the Information Provided by Environmental Management
Accounting With Investment Projects.
Lutilsky, I. D., Liović, D. and Marković, M., 2018, January. Throughput Accounting: Profit-
Focused Cost Accounting Method. In International Conference Interdisciplinary
Management Research XIV, Opatija–Croatia. 18–20 May 2018..
Reizinger-Ducsai, A., 2018. Accounting for sustainability and social responsibility. Prace
Naukowe Uniwersytetu Ekonomicznego we Wrocławiu. (515). pp.185-196.
Rogošić, A. and Perica, I., 2016. Strategic Management Accounting-Overview of Methods.
Ekonomski pregled. 67(2). pp.153-176.
Rückeshäuser, N., 2017. Do we really want blockchain-based accounting? Decentralized
consensus as enabler of management override of internal controls.
Sundvik, D., 2019. The impact of principles-based vs rules-based accounting standards on
reporting quality and earnings management. Journal of Applied Accounting Research.
van Helden, J., 2016. Literature review and challenging research agenda on politicians’ use of
accounting information. Public Money & Management. 36(7). pp.531-538.