Management Accounting: MAS and Financial Accounting Comparison

This report discusses the comparison between management accounting and financial accounting in terms of legal requirements, types of data used, format, timing, system, and valuation. It also explores different types of management accounting systems such as cost accounting, inventory management, and job costing. The report further evaluates the importance of these systems and their reports in improving business performance. Additionally, it highlights the features of good information and provides an example of calculating the break-even point using absorption costing and marginal costing methods.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
TASK 2............................................................................................................................................6
TASK 3............................................................................................................................................8
TASK 4..........................................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
In the business context, the process of accounting that is related with collecting
quantitative financial and business information into separate accounts so that day to day decision
are made is known as management accounting. It is related with gathering, reporting,
formulating of useful business report which enables manager to take valid decision in order to
improve the business performance. By using internal report, internal manager use to identify the
financial performance and profitability of company and make cosine report in order to make
further improvement. To better recognise the importance of MA topic Excite enterprise have
been selected which is located in UK.
In this report, several kind of management accounting system with its main advantages
and reports are discussed. Costing method is also elaborated in this project which help in
preparing annual statements and extract net profit. Apart from this different planning tools with
pros and cons and support in budgetary control is stated. With the support of different system
company is able to resolve the situation of financial problem.
TASK 1
Section A
(a) Assessment between MAS and Financial accounting.
Management accounting: Financial or non-monetary data in corporate reporting is
being used by bookkeepers throughout this type of accounting.
Financial accounting: In this kind of accounting the processing of various financial
reports provided to outside investors so that they can get the financial information about
company within reporting year (Smith, 2015).
Comparison:
Basis Management accounting Financial accounting
Legal
requirement
The preparing of management
accounting documents is not legally
required.
It is a legal requirement in terms of
financial reporting for investors to
formulate financial reports.
Types of data
used
Economic or non-financial information
is used in management reporting.
On the opposite, just financial
information is used to prepare authentic
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report.
Format of
presentation
The MA documents are not delivered in
any specific format.
Accountant must file financial
statements by considering IFRS
regulated particular format.
Timing In this accounting reports are frequently
issued as manager needs specific
information on each aspect of business
to make proper decision.
This accounting requires financial
statements to be published as the end of
accounting year to determine overall
financial strength.
System In management accounting manager use
to look into the every system of
different operation so that ways can be
made to improve the overall profit of
company.
Manager under financial accounting
consider the system that company used
for making profit.
Valuation This method consider the value of items
that only increase the productivity of
company.
It includes different impairments in
order to address the proper valuation of
assets and liabilities.
Various types of MAS:
(b) Cost accounting system:
This accounting system is associated with the cost forecasting method for different tasks
and procedures within company. Cost system primarily helps to control and decrease
expenditures of companies. Therefore, businesses are primarily expected to distribute the
monetary resources for company according to the projected costs of the various activities
(O’Grady, Morlidge and Rouse, 2016). This system mainly includes various types of costing
like direct, standard costing, etc. Standard expenses involve the absorption costing structure
where both kinds of expenses are assumed to be unit costs.
Whereas, direct costs consider marginal costs in which only the variable costs are considered as
manufacturing costs. This system assists businesses to maintain efficient spending control.
Excite limited is using that accounting system for the purpose of controlling the expenses of
operations in the context of entertainment services For example, absorption costs are valuable in
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effectively measuring benefit and marginal costs support to control manufacturing costs. There
are different cost related with Excite company such as;
Direct cost: These kind of cost are directly noticeable to the overall cost of the specific
product or services produced by company. Direct cost fluctuate with the level of output but are
the same for each single unit of production, thus must be control and managed by manager of
Excite Ltd.
Standard cost: This method is related with substituting an estimation cost equitable to
actual cost within accounting records, so that differences can be determined between the actual
and expected figures. Manager use to create estimated cost related to different activities in Excite
limited which support to make better decision in future.
(c) Inventory management system:
This accounting system primarily incorporates two practices that track and manage
manufactured inventory in storage. The inventory deposited could be assets of businesses, raw
materials and finished products, etc. Manufacturing divisions need to do that specifically in
businesses to make a smart decision related to output level. Different solutions such as a
perpetual inventory systems, continuous inventory systems and periodic stock systems are part
of this process. Just in time technique means reducing production time and decreased costs. The
permanent inventory plan also monitors the product balance present in factories. The periodic
inventory process results from reviewing the number of items a company holds at the start of
reporting year. This accounting system applies by the management respective firm to keep an
authentic record about inventories, such as LEDs, music system and many more so that decision
can be made regarding setting of price. Furthermore, company also apply the ABC inventory
system such as entertainment booking from customer which are nearest to the date are consider
into A category, booking that are needed to be delivered afterwards are kept in to B category and
in C category booking addressed after some months are recorded.
(d) Job costing system –
This form of accounting method is that which is connected by each task allocated to
different tasks to define expense and profit. This accounting is primarily used in businesses
where the product range is broader. That's because the manufacturing manager could be aware
about each cost for all produced item separately by using this accounting system (Sithole,
Chandler, Abeysekera and Paas, 2017). In principle, it enables executives to calculate profits in a
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certain job, which they allocate in separate business operations. The major benefit of
job accounting system in the Excite Company to know all the work costs associated with various
activities. For example Excite limited organise specific event for promoting business proposal of
newly developed company, thus with the support of this system manager keep the entire record
total employee engage in this activity so that total cost spend on each job can be ascertained and
proper future steps are made to reduce if cost are higher.
(e) Evaluation of MAS and management accounting reports.
In the company, various kinds of MAS and reports are used to make different activities
best and productive. As mentioned above, cost accounting system is associated to Excite's
financial department which help to lower the costs of various events. As well as inventory
control process, aid in managing inventory properly in warehouses (Brown and Dillard, 2015).
For instance, they handle their transactions and suppliers of equipment with this accounting
system which enables to increase sales of different services. In fact, different MA reports like
cost reports that provide specific information regarding the current cost relevant with business
activities. Along with certain other documents, such as the report on the aging of receivables or
the report on performance are connected with different duties of business entity. Therefore, MA
documents and MAS can be claimed to be related to the system of organization.
Benefits of above mentioned MAS:
 Importance of cost accounting system: For corporations, it's useful to reduce the costs
from various types of operation. In the business mentioned Excite Company uses this
system to reduce their operating costs. Furthermore, multiple costing schemes, such as
the standard costing model, aid in the identification of real differences between total
expenditure.
 Importance of inventory management system: This allows businesses to better
maintain processed materials like raw materials, finished products etc. above-
mentioned business use this accounting system, helps them to reduce storage costs and to
maintain their facilities.
 Importance of job costing system: This system is related to the system of recording any
work costs. In the case of Excite company, with the support of this system gives them
with data about total costs incurred on different job engaged in different task.
Section B
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(a) Various kinds of managerial reports
Management accounting reports - MA reports could be described as documents compelled
according to information gathered from multiple accounting systems. Specific information
regarding financial and non-financial issues is provided in all of these reports. Here are certain
Management accounting reports that are as follows:
 Cost accounting reports: The cost report could be described as a sort of document
providing comprehensive information about expense of different activities and
operations• It allows businesses to track certain activities involving higher costs. The
Excite Company produces this document with the help of accountants that allows their
management to assess the annual cost and to target on activities that lead to higher
expenditures. (Burritt and Christ, 2017).
 Inventory report: It is an inventory management system-based report. Evidence about
quantity stored in storage facilities is provided in this report. The stock document is
important to businesses as the manufacturing team focuses on the development of new
goods, according to the data provided in that report. Excite entertainment allowed its
auditor to produce this document which enables them to properly manage its products
and provide details regarding the current amount of stock to be purchased to deliver
different services.
 Account receivable ageing report: It can be classified as a type of report that
gives details about the total debt level outstanding from borrowers of company. It is
convenient to businesses, as it requires the deadline on which the parties have made an
agreement to make payments. As a result, businesses will work on debtors who have not
make payment even after the deadline has been crossed. The report aims to finance
bodies of company by reminding them about how much debtors owe and gives the name
of debtors whose payment is outstanding. As in the context of Excite limited it is
observed that accountants generate this document to obtain customers data so that
correct amount can be collected.
 Budget report: This is a sort of document generated on the framework of different types
of budgets. Details on forecast income and expenditure as well as on final results are also
considering budget report. This document is useful for administrators since it support
to take future decisions by using details regarding the current differences among actual
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and estimated results. As with the above Excite entertainment limited manager uses this
study to review evidence on measuring variances from current and expected results,
according to this report plans and policies, manager take more calculated steps while
developing new services and good by making sure that expenses are not higher than
expected income.
 Performance report: This report is basically developed by manager of companies to
examine the overall performance of various departments and employees working on
allotted job (Laing and Perrin, 2018). The report includes details on the results generated
by different activities and procedures. The performance report is primarily beneficial for
executives when they make strategic decisions about future of organizations so that any
gap or problem can be removed and performance can be grown. The Excite
Entertainment Limited company auditor publishes the report, which provides a key
decision-making process for staff and activities. In addition, individual employees are
granted for superior performance.
(b) Features of good information.
It is essential that information collected must be good and detailed so that decision are
made easily. Some of the main features of good information are discussed below:
 Accuracy: Accounting reliability and accuracy is a key element since organizations fail
to take the necessary actions when financial information is not reliable. It is therefore a
key feature of good information.
 Relevancy: The relevance of good information determines the accounting information
must be according different business operations and events. This is critical because
businesses can develop better approaches due to the importance of accounting data. That
will defiantly reduce the chances of error and every plan work resulting to generate more
and more revenue.
 Reliable and up to date: It's another feature of useful information which means that
reporting data should contain accuracy and must be up-to-date. Organizations should
retain accurate financial records so that critical organizational decisions can be made to
improve overall performance.
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 Timely presentation of information: In order to allow companies to make
valuable decisions on time, the accounting data must be provided in actual time and
date (Meidell & Kaarbøe, 2017).
TASK 2
Section (A)
The two measure accounting methods are discussed below that help to prepare income
statement to calculate net profit:
 Absorption costing method: This could be described as a type of approach where the
value product is calculated by considering fixed and variable cost. Marginal costing method: It is a form of costing approach although in which fixed costs
are viewed as period costs and overhead costs are viewed as product costs.
Contribution = Selling price per unit – Variable cost per unit
Selling price per unit £40
Less: variable cost per unit £10
Contribution per unit £30
 Break-even point = Fixed cost / contribution per unit
Fixed cost = £120000
Contribution per unit = 30
So, BEP = 120000 / 30
= 4000 tickets.
Section (B)
There are some main factors that bring changes in the above computed figures such as:
Selling price: The overall selling price modify from £ 40 to upper value which directly impact
contribution to get increased and further modify the BEP point.
Variable cost: Due to the changes in the figure of variable cost the total result from break even
points also gets changed.
Section (C)
BEP to attain desired profit = Fixed cost + desired profit / Contribution per unit
= 120000 + 60000 / 30
= 6000 tickets
Profit at sales of 4000 tickets
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Particulars Amount (in £ )
Sales (4000*40) 160000
Less - Variable cost (4000*10) -40000
Contribution 120000
Less- fixed cost -120000
Profit/loss 0
Profit at sales of 6000 tickets
Particulars Amount (in £ )
Sales (6000*40) 240000
Less : Variable cost (6000*10) -60000
Contribution 180000
Less : fixed cost -120000
Profit/loss 60000
To achieve the attractive profit, 6000 tickets are required to be marketed. It is because
there is no profit and loss when company is selling 4000 tickets.
Income statements as per absorption costing method:
Particulars Units Price Total
Sales 8000 15 120000
Less : Cost of goods sold
Opening stock
Production
Total units
500
10000
10
10
5000
100000
105000
Less : Closing stock 2000 10 20000
Cost of goods sold (105000-
20000)
85000
Gross profit 35000
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Income statements as per marginal costing method:
Particulars Units Price Total
Sales 8000 15 120000
Less : Cost of goods sold
Opening stock
Production
Total units
500
10000
6
6
3000
60000
63000
Less : Closing stock 2000 6 12000
Cost of goods sold (63000-
12000)
51000
Contribution 69000
Fixed cost 40000
Net profit 29000
Working Note:
1. OAR = 40000 / 10000
= 10
2. Full cost = 6 + 4
= 10
3. Closing stock
Production = 10000
Less: Units sold = 8000
Closing stock = 2000
Management accounting techniques and produce financial statements
In the preparation of various types of financial accounts, management accounting
strategies are relevant (Gomez-Conde, Lunkes and Rosa, 2019). All such methods include a
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specific structure for the preparation of financial statements. Like in Excite entertainment limited
company different types of MA methods are used to obtain financial statements,
like marginal and absorption costing schemes. It demonstrates that management reporting
methods for managing the internal managerial reports are beneficial so that annual reports can be
prepared by accountant easily.
TASK 3
Advantages and disadvantages of different types of planning tools used for budgetary
control.
Budget – This could be described as a future revenue and expenditure estimate. Budgets
could be compelled according to requirements for a shorter and longer period of time for a
company. These are important for businesses, since money and resources need not be efficiently
distributed without them. There are various types of budgets planned by the managers to
consider industry and company dynamics, some of these are listed below:
Zero based budget: This is among the most effective and popular budgeting strategies in
companies nowadays which support in for forecasting preferences and alternatives. The ZBB
process begins from zero, as it does not take anything into account from last year's investment or
any operation and therefore all expenditure is valid in the budget. The excite company include
this budget in order to set the expenditure limits on different activities, as manager use to analyse
the market condition and estimate the expenses required to develop required services. This also
support in determining the total revenue that can be generated by firm by delivering the most
possible entertainment services. The benefits and disadvantages of ZBB are discussed below:
Advantages:
 It makes for an accurate allocation of funds (departmental), since it does not take historic
figures into account in order to figure out actual numbers.
 By eliminating non-productive or routine tasks that support manager of excite limited
company in exploration of new and more cost-effective ways of working which
encouraged to reach the desired exciting outcomes in specific year.
Disadvantages:
 This is a moment where administrators need to produce new projections of revenue and
expenses single time.
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 To engage Professional managers are really a challenging and expensive task for the
business, in order to describe every line item or price.
Program budget: A program schedule or budget is a mechanism whereby the company
allocates the resources to various departments, programs, operations and manages the flow of
money of the company (Saeidi., Othman, Saeidi and Saeidi, 2018). Every budgetary format
contains certain specific project-related costs and profits associated with several other project
profits and costs. In excite company manager use this budget to make proper estimation about
expenses required to run different entertainment services and predict the revenue generated from
these program. The below are some advantages and disadvantages:
Advantages:
 This plan lets director to determine the company's main task and program to provide
enough resources in order to achieve the predetermined goals.
 This plan in Excite Limited helps find the sustainable business regions which needed
more money for increasing overall productivity.
Disadvantages:
 If the budget for a particular system does not work properly, the total cost of the company
would certainly increase. This proposal takes time because extensive information is required to identify the actual
need for the resources to operate different activities in respective company.
Incremental budget- This budget is an important component in management accounts
and relies on the premise that just a little adjustment is made in the current budget to make
produce new budgets. This method of cumulative budgeting starts depending on the
assumption that the costs of the past year are treated at the starting point of the current year. In
excite limited manager make better use of incremental budget for example to increase sales they
consider last year sales budget and make some possible adjustment which could lead to increase
on revenue in current year. The following list of advantages and disadvantages:
Advantages:
 This budgeting method is quite easy to accomplish and thus no difficult measurements
are needed. It can be done easily in multiple departments, because there is no need for
comprehensive analysis that benefit to reduce costs and time.
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 This budget has reduced competition and the increase of value through a year-by-year
reliable budget for Excite Company.
Disadvantages:
 This tactic can actually increase the overall spending of Director as the have to
continuously check the previous budget in order to predict about future.
 This budgeting method requires more and more time as improper prediction just on
relying on past figures can lead to wrong decision.
Use of planning tools for preparing and forecasting of budgets:
In order to create and forecast best and authentic budgets for company, require different
forms of financial plans such as ZBB, the Program and incremental budgets (Hemmer and Labro,
2017). It's compulsory to included possible financial data in these planning instruments that act
as a legal structure for the preparation of yearly budgets as shown in the respective business,
different kinds of forecasting methods are being used to manage budgets like ZBB, program
budgets. For example incremental budget is beneficial in deciding in advance about the purchase
expenses that is required to meet the future customer demand. It is also supportive to ascertain
the income level that can be generated through these services.
Planning tools to solve financial issues:
Budgetary management planning methods comprise of a critical set of financial
transaction data in company’s process. All different planning tools are beneficial to reduce and
solve the chances of financial problem arising within company process. Such with the support of
zero base budgeting company can resolve the chances of unwanted expenses. On the other side
program budget is helpful in reducing the contingencies related with different operation of excite
company so that productivity can be increased. By using incremental budget manager are able to
resolve the issue of more expenses on those activities that does not providing the better revenue
for company.
TASK 4
Management accounting systems to respond to financial problems.
Financial Governance: Financial governance can be described as an overall process
which includes collection of financial data, management of operations and activities, monitoring
of the performance and control over the data, operations and efforts of the company. Financial
governance provide assistance in resolving financial problems by having internal control,
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creating financial policies, conduction internal and external audit, manage work flow, track data
and manage data security. In context with the selected organization, financial governance helps
in solving major financial problems such as late payments from the customers and weak fund
management system. Financial governance helps the management in assessing the effectiveness
of credit terms and policies executing by the company and also suggest solutions to strengthen
the policies if required. This governance system also supports internal audits within the
establishment so that loop holes in the accounting system can be detected and an effective
financial accounting system can be implemented.
Full Compliance Management System: A compliance management system or CMS is a
program or framework that has been designed to keep an organization aware and utilise fair
lending regulations within the organization and be on the right side. Organizations nowadays are
working into a dynamic economic environment which is influence by emerging technology,
financial services and globalized market and industry. In order to remain profitable, financial
institutions have to modify business offerings and manage the compliance with the new
legislations and standards at the same time. A fully compliance management system helps the
managers in implementation of adequate standards, policies and provisions which helps in
identifying and solving various financial problems. Benefits of full compliance are given below:
 Full compliance of management system helps in maintaining business procedures
workflow and minimize the risk. It allows restricted or selective access of confidential
data to the employees to ensure that they will receive authenticated information only.
 Compliance management also assists to reduce legal conflicts and avoid future costs. It
encourage the administration to practice good data security and avoid a breach altogether
so that establishment do not have to face any legal consequences and long-term losses.
 A fully compliance system helps in communicating the task among the employees and
entire organization, track controls and inside standard processes and create strong
customer base.
The management should develop a full compliance management system to avoid the
following consequences:
 Non-compliance with certain regulatory laws can impose criminal charges on the board
members or directors.
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 A regular non-compliance can damage the brand image, goodwill and reputation of the
organization. Customer can loose their trust from the establishment.
 Non-compliance with the laws and standards can cause a loss of lucrative opportunities
and other corporal owners can deny to derive business from the organization.
Monitoring System: The respective organization utilize financial governance system to
monitor and control the operations and find out the variances or deviations of actual outputs from
targeted goals. An effective compliance with financial governance system helps the management
in setting measurements for achievement of objectives and provide regular check of the
efficiency of activities and people. This helps in performance appraisal and detect deviations.
After identifying variations it helps in implementing standards and guidelines that are must to
control the deviations and make corrections in the procedures and structures.
MAS to solve financial issues:
In an organisation the use of different system is beneficial to reduce the financial problem
that can hinder the overall performance. In the context of above selected company there have
been different financial problem that reduces the functioning of operation and lead to decrease
the complete productivity and performance. It is observed that with the support of cost
accounting system are able to reduce the issue of more spending than earning and making
resources engage in those activities that results better profit. Similarly with the aid of inventory
management system manager of excite limited are able to reduce the cost incurred on managing
extra raw material. As they start giving the order on the specific date to meet the production
requirement without storing in warehouse for long period.
PART B
Calculations:
BEP to attain desired profit = Fixed cost + desired profit / contribution per unit
= 120000+90000
= 210000/30
= 7000 units
Profit of sale of 7000 units
Sales (7000*40) = 280000
- Variable cost = 70000
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Contribution = 210000
- Fixed cost = 120000
Profit = 90000
CONCLUSION
The above report concluded that management accounting is mandatory to be used, as it help
internal manager to make valuable decision from internal report in order to maximise
productivity. Different reporting methods, such as performance report, budget and cost report
help in preparing forecasted budgets, analyse the performance of different operation and
maintain a proper record of cost incurred on these activities. With the support of several MA
system Excite limited is able to resolve the financial problem and make each operation to work
in desired manner to attain the goals. In contrast to certain planning methods, such as ZBB,
manager are able to control budgets and make proper estimation so that each business operation
work in the favour to attain main objective.
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