Management Accounting: Principles, Techniques, and Budgetary Tools

This report discusses the principles, techniques, and budgetary tools used in management accounting. It explains how to integrate management accounting systems and adopt management systems to act on fiscal problems. The report also provides examples of companies that have successfully implemented these strategies. The subject is Management Accounting, and the course code is not mentioned. The report is relevant to students studying accounting, finance, and business management. The report is suitable for students in any college or university.

MANAGEMENT
ACCOUTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Principle Of Management Accounting .......................................................................................3
Importance of Integrate Management Accounting Systems .......................................................4
Techniques And Methods For Management Accounting............................................................4
Advantages And Disadvantages Of The Budgetary Tools..........................................................6
Adopting Management System To Act Fiscal Problems ............................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................1

INTRODUCTION
Management accounting refers to the procedure of providing fiscal data as well as resources
to the responsible person in order to help out in decision-making. The main aim of management
accounting is to increase scale of the profit and decrease the scale of loss (Abdusalomova, 2020).
The present report will examine the management accounting principle to integrate MA systems
within Eastern Engineering Co. Ltd. It is medium-sized enterprises in manufacturing sector. Along
with this, the report will highlight method and know the advantages and disadvantages budgetary
tool and comparison between the organizations adopting management systems to react to fiscal
problems.
MAIN BODY
Principle Of Accounting Management
Management accounting consists of various principles which are explained below
 Stability and constancy: in this principle the polices which are formed for beneficial of the
organization should be stabilized and consistence. The decision, manager of firm Eastern
Engineering Co. formed is fixed or unchanging as it includes the maximization in surplus.
The policies and plan can be moulded by rapidly dynamic plan of action as well as
operational activity (Ameen, Ahmed, and Abd Hafez,2018.).
 Designing and compiling: in this principle the accounting system of the firm will be
designed in a proper manner that it present the relevant data. The data includes accounting
data, records, reports, statements and another evidence of ancient, immediate or
forthcoming. Compiling of information gathered is so important as it helps in comparison of
records and important decisions are taken on the collected data bases.
 Utility: the accounting system of the firm is for long term which can delivered purposeful
data as well as relevant forms. The utilization of proper information give assistance in
solving the problem of the firm (Azudin, and Mansor, 2018). The utilization of accounting
system is fixed until they are useful for the growth and gives benefits to the firms.
 Utilization of resources: it is concerned with the availability of the resource used in the
firm should be effectively utilized. The resources of the firm utilized in proper manners
which are ensured by the management accounting system. The organization used the
maximum resources of the company in state to increase the profit.

 Integration: the principle indicates that information related to the accounting system should
be combined in an effective way. The combination of resources is very important I the firm
to solve the issues and maximize the profit for the company. This will give assistance to the
firm in acquiring the accounting services at a minimum cost.
Integrate Management Accounting Systems
 Real time view of all transactions:
The organization used software to collect information manually from ordinary system to the
accounting one. Whatever the issues company face will be avoidable by the utilization of integrated
accounting system. The integrated accounting delivered actual time view of all the transaction
which are related to the business concern. It will involve excess manpower to re-enter the collection
of information. Whenever any transaction occurs the malformation automatically flow into
accounting system. It will give assistance to the human to make smart decision to solve the
problems of the company.
 Assist in calculating costing and commissions:
It will give assistance in calculating occupation cost, sales commissions etc. the software
have all the information related to posting. The posting are manually generated in general ledgers
and account payables. The information of calculating in the software is totally accurate without any
possibility of errors.
 Speeds up in decision-making:
As the software provide all the evidence which may be of past, present or forthcoming
which helps in making decisions fast for the benefits of the organization. It will give assistance in
analysis of the information rapidly. It will make it easy to form smart business plans of action for
the company.
Methods &Techniques For Management Accounting
There are various different types of managerial accounting:
 Absorption

It is defined to know-how the costing can keep a check on all the cost of manufacturing. The
management will use this technique to ingest the cost receive on the product. This cost include
direct and indirect cost. Direct cost will consider material, labour that is utilized in production. The
formula to calculate absorption costing
TC = DC(direct cost)+IC(indirect cost)
 Marginal
It is a traditional costing method where variable cost is charged to the cost. However, the
fixed cost is entirely worn off against the contribution cost. It also known as cost-volume-profit
analysis. The marginal cost is when the total cost is changed when the quantity that is produced is
increased by one. It very helpful for brief period to make any economic decisions. The formula to
calculate Marginal costing
Marginal Cost = Change in costs / Change in quantity
 Costing And Valuation Of The Product:
Costing of the Product will deal with deciding the total cost that is involved in production of
a product. Cost can be dashed down into various subcategories. Cost accounting can measure and
identify these costs. It calculates and allocate overhead charges so that it could measure the full
expenditure that is incidental to the Good's product-ion. Over the head cost can be located on the
basis of number of goods produced or any other activity that is related to production.
 Cash Flow
It performs the analysis to find out the cash outcome of business conclusion. Most of the
companies will keep their transaction on the accumulation basis of accounting, although it will
provide more high-fidelity picture of organization financial situation. The accountant may use
capital management strategies to optimize cash flow and the company has to guarantee it has liquid
possession to screen the short-run debts. The formula that can be used to calculate cash flow:
Operating Cash Flow = Operating Income + Depreciation — Taxes + Change in Working
Capital

 Inventory Turnover
It is shown as a calculation of how the company has sold or replaced the inventory
numerous times in the given period. Calculative business inventory will assist in making better
decisions on costing, manufacturing, marketing and purchasing of new inventory. It may also
calculate and determine the carrying expenditure of inventory. The formula to calculate Inventory
Turnover :
Beginning inventory + net purchases – COGS = ending inventory
 Constraint
This accounting method will also involve revaluation of the constraint within the production
line or in between sales procedure. It also helps to find out where the bottleneck might occur and
can figure the outcome of these constraints on profit, income, and cash flow. This information can
be used by managers to implement the various alteration and increase the efficiency in
manufacturing or in sales (Ouassini, 2018).
 Financial Leverage
It is defined as the capital which is acquired or buy new asset for the organization with the
help of utlization of debt.with the asistance of this matrix the accountant of the company can
deliver the tools which were required to analyis the debt as well as equity mix to put leverage. It is
critical for administration to review the ratios and statistics on a regular basis to be able to response
the enquiry from its board of directors, capitalist, and debtor.
Advantages And Disadvantages Of The Budgetary Tools.
 Incremental Budgeting:
It is type of tradition budgeting technique where the budget is prepared by picking current
budget or the actual performance as base. It is one of the easiest budgeting approach. It also shows
consistency and operation stability. This accounting method ensure that the funding for the projects
remain stable for long period (Mayla, and Shauki, 2019). However. Being the simplest method and
yet consistent but this method is frequently criticized by number of flaws. It promotes unnecessary
spending, it also discourages innovations and fosters conservative business environment.

 Activity-Based Budgeting:
It is system which researches, record and analyse the activities which might lead to company
cost. It start by deciding the financial goals according to this the budget will be made. The
advantages of this method is that it evaluate each and every cost drivers. It helps the organization to
gain competitive edge over the market. The main disadvantages of this budgeting is that it is very
complex and require greater level of understanding. This method is useful for short term period and
have huge resource consumption.
 Zero-Based Budgeting:
This method involves building the budget from scratch every time. It is a tool to help the
company align their spending with strategic goals. Every financial year the company has to build
their budget from zero so that all the components can be verified. Various famous companies uses
zero based budgeting as their major budgeting tools (Ibrahim, 2019)
The leading advantages are lower costs, focused operations, flexible budgets, and more
disciplined execution. The cons are the expectation of resource intensity, being influence by savvy
managers, and is bias toward short-run preparation.
Adopting Management System To Act Fiscal Problems
The organization face various financial problem so the company adopt various management
system in order to resolve them. Liquidity problem is the main problem of the firm which includes
lack of the cash in a firm. The organization used technique of budget control in order to resolve this
issue. The company can make budget according to the income of the firm collected from
manufacturing sector. Along with this also lower unnecessary expenses of the firm. Also, the
company adopt liquidity ratio through which the company identifies ability to pay off company's
debt. The company can use cheap raw material in order to decrease expenses or in order to save
money. Another solution is to increase the spending awarenesses within the company. Many other
companies used this solution at the time of financial problem in order to solve them. The name of
the companies are Eastern Engineering Co. Ltd. and smith brother co.
Over debt problem is the another major problem company faces. The company take loans
from financial institute beyond the capacity to pay. In order to solve this difficulty company used

leverage ratio as the plan of action. Net leverage ratio is another solution to measure the debt of the
organization. The other company use all these ratios in order to reduce over debt of the organization
like Veramed & Foxconn etc. the companies decrease the expense of the company which is not
required immediately. The company consolidate the debt with the assistance of previous data
available in the system.
Bad credit is also a fiscal problem which company faces. This problem arises because of bad
payment behaviour of the organization. The company didn't pay loan instalment on given time
period. In order to resolve this issue company check out the previous records and formed new
budget for the organization (Oyewo, Babajide, Xuan Vinh and Titilope Akinsanmi). The firm
modify the budget techniques and modify according to surplus the company earn in historical
period. Along with this many companies like align technology clear old financial issues with
financial institutes such as banks and clear old error that create issues.
CONCLUSION
The report discusses the various aspects of management accounting. It also shows various
principles used in management accounting and the importance of management accounting. The
report also explains different methods and techniques that are used in management accounting
reporting. It also shows various advantages and disadvantages of budgetary tools and also compares
how the establishments are adjusting their management strategy to respond to different financial
difficulty.

REFERENCES
Books and journals
Abdusalomova, N., 2020. Principles of ties of internal control and management accounting
systems at the enterprises of black metallurgy. Архив научных исследований, (2).
Ameen, A.M., Ahmed, M.F. and Abd Hafez, M.A., 2018. The Impact of Management
Accounting and How It Can Be Implemented into the Organizational Culture. Dutch
Journal of Finance and Management.2(1). p.02.
Azudin, A. and Mansor, N., 2018. Management accounting practices of SMEs: The impact of
organizational DNA, business potential and operational technology. Asia Pacific
Management Review.23(3). pp.222-226.
Ibrahim, M.M., 2019. Designing zero-based budgeting for public organizations. Problems and
Perspectives in Management, 17(2).
Mayla, K. and Shauki, E.R., 2019. Evaluation of Budgeting System Using Activity-Based
Budgeting: A Case Study at PT X.
Ouassini, I., 2018. An introduction to the concept of incremental budgeting and beyond
budgeting. Available at SSRN 3140059.
Oyewo, B.M., 2021. Outcomes of interaction between organizational characteristics and
management accounting practice on corporate sustainability: the global management
accounting principles (GMAP) approach. Journal of Sustainable Finance &
Investment.11(4). pp.351-385.
Oyewo, Babajide, Xuan Vinh Vo, and Titilope Akinsanmi. “Strategy-related factors moderating
the fit between management accounting practice sophistication and organizational
effectiveness: the Global Management Accounting Principles (GMAP) perspective.”
Spanish Journal of Finance and Accounting/Revista Española de Financiación y
Contabilidad 50. no. 2 (2021): 187-223.
Rikhardsson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management
accounting research: Status and future focus. International Journal of Accounting
Information Systems.29. pp.37-58.
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