Concept of Management Accounting– Doc

MANAGEMENT ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Concept of management accounting .....................................................................................1
P2 Explain different methods used for management accounting reporting................................2
M1 Benefits of Management Accounting ..................................................................................7
D1 Integration of management accounting reporting and system..............................................7
P3 Preparation of income statement by using absorption and marginal costing.........................7
D 2 Interpretation of case 1 & 2..................................................................................................9
P 4 Advantage and disadvantage of different planning tools....................................................10
M3 Analysing use of different planning tools...........................................................................12
P5: Compare how organizations are adapting management accounting systems to respond to
financial problems.....................................................................................................................12
M4 use of management accounting in resolving financial problems........................................14
D3 Critically analyses of planning tools to resolve financial problems....................................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management Accounting is about preparing all the financial reports such as P/L, B/S and
various other reports for disclosures. This report is about Prime Furniture Ltd. which is medium
sized enterprise in the manufacturing sector. It shows the concept of management accounting, its
various methods such as cost accounting, financial accounting, tax accounting with examples.
Furthermore, this study includes various cases and their interpretation which includes marginal
costing and absorption costing, various types of budgets, cash flow forecasting and their
interpretation.
TASK 1
P1 Concept of management accounting
Management Accounting is the process of analysing business costs and operations to
prepare internal financial reports, records, and budget reports, Account Receivable Aging
reports, Cost managerial accounting reports which would help managers to take best decision in
order to achieve business goals of Prime Furniture Ltd (Appelbaum, Kogan and et.al., 2017).
Functions of Management Accounting System -
 It provides necessary information and data which helps managers in making short term
and long term goals for the organisation.
 It helps the management in organising human and non-human resources for the
organisation.
 It helps in controlling the various cost for the organisation through standard cost, budget
costing, Return on Investment etc.
 It helps in making analysis on various data available and make interpretation so that
managers could take decision for the organisation.
Types of Management Accounting System are-
1.Financial Accounting
Financial Accounting means to classify, analyse, summarize and record the financial
transactions of the Prime Furniture Ltd. A company is required to record financial transactions as
per accounting rules and procedures which are defined under Accounting Standards and
Principles such as Going Concern, Book Keeping, Dual Accounting System etc. Accounting
Information System is used by company to collect, store, manage, records all the data so it could
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help accountants, investors, auditors, regulators to take the decision from the available data.
Internal Control as defined under auditing means to check the performance on regular basis.
Example – Cash Purchases by Prime Furniture Ltd. of $ 1,00,000
Purchases A/c Dr. $1,00,000
To Cash A/c $1,00,000
2.Cost Accounting
Cost Accounting means classifying, analysing, summarizing and recording all the cost
related to organisation to make the decision so as to control the cost (Weygandt and et.al., 2018).
Cost Accounting includes Product costing and Activity based costing. Product Costing is related
to the prime cost such as direct raw materials are allocated per unit, direct labour is allocated as
per hour, fixed and variable overheads etc. Activity Based Costing is related to the indirect costs
of the company such as setting up machine for production purpose etc. It is basically used in
manufacturing organisation.
Example –
Revenue 100000
-Cost of Goods Sold -25000
=Gross Profit 75000
-Fixed Expenses -25000
-Variable Expenses -15000
=Net Profit 35000
3.Tax Accounting
Tax Accounting is a structure of accounting methods where accounts are made related to
tax rather than for public financial statements. Example of Tax Accounting are for individual
Income Tax is levied, Tax levied on partnerships and corporates is Corporate Tax and on Sales-
Sales Tax or GST is levied.
Example- Prime Furniture Ltd. sold the goods worth $1,000 on which there is 10% tax
Cash / Account Receivable A/C Dr. $1,100
To Sales Revenue A/C $1,000
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