Management Accounting: Essential Requirements, System, and Reports

This presentation provides an overview of management accounting, including its essential requirements, the management accounting system, and the difference between financial and management accounting. It also covers different types of managerial accounting reports. The presentation is relevant for students studying management accounting or anyone interested in understanding the role and importance of management accounting in organizations.

Management Accounting

TABLE OF CONTENTS
 INTRODUCTION
 MANAGEMENT ACCOUNTING AND ITS ESSENTIAL REQUIREMENTS
 MANAGEMENT ACCOUNTING SYSTEM
 DIFFERENCE BETWEEN FINANCIAL AND MANAGEMENT ACCOUNTING
 TYPES OF MANAGERIAL ACCOUNTING REPORTS
 CONCLUSION
 REFERENCES

INTRODUCTION
 Management accounting is the branch of accounting in which all the relevant
information is collected by the management which helps in decision-making process.
 It is mainly used by the internal management teams of the organization.
 In this, all the financial information is shared by the finance team to the management
team of the organization.
 The present report is about Prime Furniture which is London based company.
 This report covers meaning and essential requirements of management accounting
system and the methods used in it.

MANAGEMENT ACCOUNTING AND
ITS ESSENTIAL REQUIREMENTS
 Management accounting refers to the process of identifying, measuring,
interpreting and communicating the financial information to the internal management
team so that relevant decisions can be taken to achieve goals.
 As per Institute of Management Accountant, management accounting is a
profession which involves partnering in decision making process, developing and
devising planning and performance management systems which provides assistance in
financial reporting and control which helps in formulating organizational policies and
strategies.

MANAGEMENT ACCOUNTING SYSTEM
 It is the system deployed which provides relevant information to management which
helps in taking decision.
 Its aim is to manage and control the business in a better way. It includes informative
reports, inventory analysis, cost analysis etc.
Importance of integrating management accounting in an organization
There are several important factors of management accounting and these factors are of immense
importance to an organization. Some of them are discussed below.

Cont..
 Origin: It is derived from the financial accounting during the 1900s. But at that time more
focus was put on financial accounting.
 Role: The major role of management accounting is to meet the needs of the internal
management.
 Principles: There are two principle of management accounting. First is principle of
causality, which refers to the analysis of cost based on the input and output relationship of
the resources involved in the process. Second is principle for analogy, which refers to the
utilization of casual insights by the management to infer past and future outcomes.

DIFFERENCE BETWEEN FINANCIAL
AND MANAGEMENT ACCOUNTING
Basis of comparison Management accounting Financial accounting
Meaning It is the accounting system which
provides information to the internal
management in taking decisions
relating to organizational policies and
plans.
It is the system which is focussed on
developing financial statements of the
organization to provide financial
information to the interested parties.
Objective To provide financial information to the
internal management for decision
making (Malina, 2017).
To provide financial information to
external parties.
Users Only internal management. Both internal and external parties.
Publishing and auditing Neither published nor audited. It is required to be published and
audited.

Cont..
Types of management accounting system and its essentials
There are different types of management accounting system which are used by the
organization as per the requirement. Some of them are stated below.
Cost Accounting system: It is the costing system used by the firms to estimate the cost of
the product. It keeps track of its material as they go through the production process. It helps
in analysing the profitability of the organization (Christ and Burritt, 2017). The essential of
cost accounting system is to suit the nature and size of the organization.

Cont..
Inventory management system: This system allows the user to track goods across its supply
chain. It optimizes entire inventory management system. It includes the process from order
placement to order delivery and to the end sales. The essential requirements of this system are
tracking inventory, forecast demand, predicting ordering cost and carrying cost etc.
Benefits:
Automation of manual task like data entry, long calculation etc.
Minimizing inventory cost which will result in increasing revenue and profits.
It helps in integrating entire business to one another.

Cont..
Job costing system: It is the system which involves accumulating the information related
to cost about a specific product or services. It is used in identifying the cost of single unit
of the product and it is manufactured as per the requirement of the customer. It is essential
because it helps in knowing the price of the job or services.
Benefits:
It helps in identifying the profitability of each job individually.
It can be used as basis for estimating the cost of similar job which are required to be
carried out in the future.

Cont..
Price-optimizing systems: It is a system that calculates how demand changes at different price
levels. This data is then combined together with the stock and cost level to recommend pricing
that will help in improving the profits. It is very essential if the organization wants to increase
profits at the same level of customer retention.
Benefits:
It helps companies to focus on key areas such as margin of sales and conversion rates.
It reduces the need for manual work and optimizes the entire process.
It helps in identifying the buying pattern of customers which results in quick decision making
related to pricing.

Cont..
Critical evaluation of management accounting system and management accounting in an
organization
Management accounting provides both qualitative and quantitative information on the performance
of the Prime Furniture.
The management accounting system goes through four stages which includes per-integration,
integration, planning and implementation and review and evaluation.
 Integration of both management accounting and management accounting system will help Prime
Furniture in effective decision making but the only thing is it might take time to gather all the relevant
information.

Cont..
Relevance, reliability and accuracy of the information
 Information provided to the user should be relevant as per the requirement.
 The needs of the user changes over the period so it is the duty of the organization to
collect and report performance information based on the statutory requirement.
 Reliability refers to the authentication of the information provided.
 The information provided should be true and fair and represents the correct financial
picture of the organization.

Cont..
Way of presentation of information
 The information presented should be such as way that users can easily understand the
information it depicts. The organized and understandable form of information helps
users in taking better decision making. This decision can be related to further
investment, granting of loans by banks and other financial institution. So, it is very
essential to present the information in an understandable way.

TYPES OF MANAGERIAL ACCOUNTING
REPORTS
There are different types of reports prepared by the management, some of them
are stated below.
Budget reports: These are the reports prepared to measure the performance of
the organization. It is prepared based on the past year data.
A company prepares budgets which includes all source of incomes and its
application.
 It includes different types of budgets such as purchase budget, production, sales
etc.

CONCLUSION
 From the above it can be summarized that management accounting is very essential for
the organization.
 The different types of management accounting system that can be used by Prime
Furniture and its benefits to the organization.
 Different costing methods and techniques that can be used to prepare company’s
financial statements.

REFERENCES
 Ax, C. and Greve, J., 2017. Adoption of management accounting innovations:
Organizational culture compatibility and perceived outcomes. Management Accounting
Research, 34, pp.59-74.
 Birt, J., and et.al, 2020. Accounting: Business reporting for decision making. John Wiley &
Sons.
 Christ, K. L. and Burritt, R. L., 2017. Water management accounting: A framework for
corporate practice. Journal of cleaner production. 152. pp.379-386.
 Collis, J. and Hussey, R., 2017. Cost and management accounting. Macmillan International
Higher Education.