Management Accounting: Types, Techniques, and Tools for Financial Planning

This document provides an overview of management accounting, including its purpose, types of systems, and benefits. It also discusses accounting techniques for preparing financial reports and various tools for financial planning. The report focuses on Innocent Drinks Limited as a case study.

Management Accounting

Contents
INTRODUCTION...........................................................................................................................................3
MAIN BODY..................................................................................................................................................3
Part 1...........................................................................................................................................................3
Types of Management Accounting systems along with essential need. .................................................3
Distinction between management accounting and financial accounting:...............................................4
Types of Management Accounting systems: ...........................................................................................4
Management Accounting reporting:........................................................................................................5
Benefits of MAS:......................................................................................................................................6
Integration of MAS and MA reports.........................................................................................................6
Part 2...........................................................................................................................................................7
Accounting techniques to prepare financial reports................................................................................7
Management Accounting techniques used in order to prepare all the financial reports......................11
Interpretation of data............................................................................................................................11
Part 3.........................................................................................................................................................11
Various tools of planning.......................................................................................................................11
Planning tools for forecasting budgets..................................................................................................12
MAS to solve financial issues. ...............................................................................................................13
Accounting techniques:.........................................................................................................................13
Comparison:..........................................................................................................................................14
To figure out financial problems MA is used..........................................................................................14
Planning tool to figure out financial problems.......................................................................................14
CONCLUSION.............................................................................................................................................15
REFERENCES..............................................................................................................................................16

INTRODUCTION
Accounting is defined as the procedure that mainly deals with recording of financial
transaction of an organization. In addition to this, the process of accounting involves analyzing,
reporting and summarizing these transaction in order to overlook the financial condition of a
company (Agrawal, 2018). It is stated that management accounting uses those approaches of
accounting that are responsible for tracking financial and non-financial records of the
organization. In the present report, Innocent drinks limited is chosen as a base company which is
a client of AJ and Sons that give accounting and consultancy services. The report will
categorized into three parts, on the first part there is discussion about management accounting
system and reports. In addition to this, the second part is associated with financial techniques
along with its implications on particular data. In the last and third part, contribution related to
planning tools and management accounting system were elaborated in a proper manner.
MAIN BODY
Part 1
Types of Management Accounting systems along with essential requirements.
Management Accounting- It is defined as an effective accounting that mainly used to
collect and assess all needed information which basically arise during financial year. In addition
to this, it is the procedure that is conducted by a company for developing internal accounting
reports which is significant for growth as well as success of an organization.
Purpose of Management Accounting- It is determine that management accounting is
used for the planning of future requirements of an organization by using financial information
which are given to plan budget & execute strategies to enhance profitability. Another purpose of
management accounting is directing and motivating staff members in a proper manner.
Moreover, it is analyzed that it is the procedure that act as controlling mechanism for an
organization which leads to improvement in performance level of a company.
Distinction among management accounting & financial accounting:
Dimension Management Accounting Financial accounting
Users It is basically an accounting It is determined that financial accounting

procedure that is designed as well
as developed for all internal
stakeholders (Gogaev, 2019).
method is used by both external and
internal stakeholders.
Regulations For preparing such sort of
accounting, it is analyzed that no
rules & regulations are used.
It is determine that financial accounting
involves different forms of regulations
that is required to be undertaken by
accountant at the time of preparing
reports.
Type of
company
Management accounting used and
implemented by any form of
business entity.
This form of accounting system needs
special and particular business entities
that are listed in stock exchange.
Types of Management Accounting systems:
It is stated that management accounting is an appropriate as well as effective accounting
system that are associated with each segment of an organization. It involves various number of
accounting system, which are as follows: Cost accounting system- This accounting system is basically developed with a process of
tracking & controlling overall expenses that occur in an organization in an accounting
cycle. This system involve recording of cost of the item and compare standardized cots
that is easy for identifying efficiency as well as progress of different activities in relation
to the expenses. With reference to Innocent Drinks, its finance manager can gather data
or information by the assistance of accounting system that is associated with the cost of
different activities.
Essential requirement- The requirement of cost accounting system is to effectively and properly
control unnecessary expenses that as a result enhance revenue of the company. In context to
Innocent Drinks, such accounting system assist in declining additional cist and expenses of
unwanted activities. Inventory management system- It is a form of accounting system that is mainly related
with managing of all kind of stock of the company (Hutaibat and Alhatabat, 2020). It is
determine that it can properly done by the assistance of recoding of each stock on basis

that involve semi-finished stock, consumption of raw material, prepared stock and many
more. Furthermore, inventory management system are being used by higher authorities
considering FIFO, LIFO method. In relation to the respective organization, it is stated
that top level authorities adopt inventory management system in order to consume the
available raw material in an effective and better way.
Essential requirement- It is consider as a significant form of accounting system that help in
using available stock in a proper and effective manner. In context to Innocent Drinks, it is
analyzed that it is one of the significant element that help in managing raw material in an
appropriate manner which leads to attainment of positive outcomes as per the requirements. Job costing system- It is consider as another form of accounting system that basically
emphasis on tracking cost of job along with the task aligned in the procedure of
completing operations in a proper manner. The main motive of job costing system is to
measure cost of each unity which further help in taking effective decisions for future.
With reference to Innocent Drinks, it is analyzed that such form of accounting system is
adopt to identify the cost and objective assigned with the particular task in an effective
manner.
Essential requirement- It is important for the higher authorities of an organization to adopt Job
costing system as it help in identifying task assigned to finish a particular activity. In addition to
this, it also help business entity to determine the cost of each and every activity as well. If it is
taking about the finance manager of respective organization, it is analyzed that it adopt job
costing accounting system because they are having large product portfolios.
Management accounting reporting:
Management accounting is basically the process of developing as well as preparing various
sorts of formal documents that involve information associated to different segments of an
organization. It is analyzed that there are various reports used by administration of a company
which can effectively help in making better decisions. The reports are mentioned below: Inventory management report- This document involve all the information related with
every aspects of inventories in a systematic and proper manner. In addition to this, it also
involve data associated to the quantity of consumption of raw material, required material,

additional material and so on. It is determined that all such information are used by
higher authorities for taking better decisions (Johnstone, 2018). In context to Innocent
Drinks, its finance manager and higher authorities develop inventory management report
in order to collect all the information about its stored materials in a proper manner.
 Performance report- It is consider as another form of report that involves data
associated to the performance of the employees along with the financial position of the
organization. According to the present report, all the data related to profit, loss, cash
availability, return and so on is mentioned. If it is talking about Innocent Drinks, its
finance manager adopt and make use of performance report as per the requirements of
company.
Benefits of MAS:
MAS Benefit
Cost
accounting
system
It is determine that cost accounting system is beneficial for the companies in
order to deal with the issue where organization expenses are high.
Inventory
management
system
Inventory management system is consider as a useful system that help
business entity to examine an appropriate and maximum utilization of the
stock which is available at present time (Khosiev, 2019). It is determine that
the finance manager of Innocent Drink attain benefits by using such
accounting system as it assist in getting all information about the daily
consumption.
Integration of MAS & MA reports.
There ae various sort of management accounting system and management account that help
an organization to attain success in a proper manner. In the report, different forms of accounting
system are explained above that help finance department of particular organization. Along with
this, management accounting is basically a report that is related with the inventory report and
also associated with the department of production. It is analyzed that integration of both MAS
and MA directly instruct higher authorities due to which they can take effective decision and
sustain in market for longer-time period.

Part 2
Accounting techniques to prepare financial reports.
Marginal costing- It is an accounting technique that is related with developing of income
statement undertaking the variable expenses and fixed expenses as main and variable cost
respectively. It is analyzed that marginal cost is defined as the change in total cost that is increase
when quantity produce is raise by one unit.
Absorption costing- It is undertaken as another accounting technique related with
development of income statement. Herein, both fixed and variable expenses is undertaken as the
main cost.

Management Accounting techniques used in to prepare and develop the financial reports.
It is determine that there are various types of accounting techniques used by an entity for
preparing financial reports in a proper and appropriate manner. These techniques are basically
act as framework for the users in order to follow systematically procedure that directly leads to
positive and desirable outcomes. The two different techniques that is mentioned in above section
are going to be adopt by managers of finance for developing income statement that are marginal
and absorption cost method. It is analyzed that both the accounting techniques are mainly used
by companies to develop results that are beneficial for organization performance.
Interpretation of data.
It is stated that part two income statement is developed that is interpreted in a proper
manner below:
By the help of prepared income statement that is prepared under marginal costing, it is
analyzed that there is a net profit identified in April and May both, these are April (£13000),
May (£22000) respectively. Along with this, it is determined that there is some variation in net
profits because of high sales shown in month of May (Laela, 2018). On the other side, as per the
absorption cost the net profit identified is £19000 and £25000in the same time period. Moreover,
it is stated that one of the main cause behind difference occur in total net profit in these particular
technique is basically the way they take variable and fixed cost within the overall process of
preparing income statement in a proper manner.
Part 3
Different tools of planning
There are various tools used by finance department of an organization for planning, which
are as follows:
Budgetary control : The main purpose of using budgetary control technique is to prepare
budget for coming time period through comparing actual performance with the estimated
ones. It is determine that to maintain a balance in financial performance of company,
such technique will assist out as it is directly related with all forms of entities. In addition
to this, it also help in searching out various types of variances. With reference to Innocent
drinks, tool can be executed:

Capital budgeting; It is undertaken as an effective budgeting approach that is used to
measure power of projected plans of finance. It is determine that projects associated with this
approach is implemented through different methods such as net present value, payback time
period and so on(Pasch, 2019). One of the motive of adopting this form of budgeting is to
instruct higher authorities to process appropriate steps to spent or invest heavily in project.
Advantage- One of the main advantage of such approach is it assist companies to protect
themselves with any financial risk occur in future. It suggest higher authorities to choose an
appropriate and feasible option from different alternatives. Along with this, it assist business
entities to support control over the expenses that deals as investment.
Disadvantages- It is analyzed that capital budgeting technique is applicable for big projects and
for large companies as it does not consider small companies and task as well. In addition to this,
such approach measure project efficiency that is mainly based on assumptions which sometime
leads to loss of business entity
1. Cash budget- It is another approach that involve information associated to those action
which are directed to both cash inwards and cash outwards in a specific accounting time
period. In relation to respective organization, such budget is adopted to manage cash
inflow & cash outflow as well.
Advantages- It is determined that such approach help companies to assign their cash in an
effective manner so that no loss is occur in coming time period.
Disadvantage- It is analyzed that the performance of an entity is affected by external factors &
because of this, cash budget did not give appropriate prevision of cash receipt and cash payments
as well. Along with this, they are enable to use cash due to predetermined plans (Pavlatos and
Kostakis, 2018).
Planning tools for forecasting budgets
It is significant for the higher authorities to plan a budget and forecast it in an effective
manner. In addition to this, it is analyzed that it is only possible when planning tools such as
capital budget and cash budget information associated to estimation of financial values. It is
determine that Innocent drinks make use of three mentioned budgets that directly contribute
towards control and direct of financial values in an effective manner.

MAS to solve financial issues.
It has been said that there are many financial problems and issues faced by large
companies because of ineffective management. Along with this, it is analyzed that it is difficult
to identify such company who did not face any financial problems. The financial issues are given
below:
Unwanted higher expenses- It is determined that such sort of financial problems is faced
by those organization who are not capable to manage overall expenses in a proper manner. It is
stated that such issues occur in organizations due to lack of knowledge, unskilled employees,
ineffective budgeting and so on. In relation to Innocent Drinks, occurrence of such issues directly
impact on sales of company in a negative manner (Saeidi, 2018).
Inconsistency in the overall sales- This financial issue is related with change of sales
revenue that is arise because of high competition and internal expenses as well. It is stated that
such financial issues reduce the level of growth and success of company. With reference to
Innocent Drinks, it is determine that company is facing such issue in present due to its ineffective
pricing strategy.
Accounting techniques:
Bench marking- It is consider as an effective approach that is adopt by department of
finance in an organization in order to make comparison among current and actual performance of
company. It is analyzed that such sort of comparison is occur at workplace in order to gain an
understating about gap that as a result assist in using effective methods that leads to attainment of
benefits according to the requirements. It is determine that bench marking is beneficial as well as
effective for finance department as help in addressing areas that is weal and needs extra efforts as
well.
Key performance indicator- It is the type of accounting approach that involve financial
and non-financial aspects that is going to be measured by business entity in an appropriate
manner. In context to financial aspects, information associated to expenses, loss, profits and
return are going to be involved. In relation to non-financial aspects, all the data related with
political condition, turnover, working condition are included. This will help in assessing the
major cause of financial problems arise at workplace.

Comparison:
Base for
comparison
Innocent drinks limited George’s drinks limited
Financial
issue
It is analyzed that Innocent Drinks
is facing problems associated to the
decline of their sales as compare to
its last accounting cycle. It as a
result reduce the performance level
of the organization.
In relation to such business entity, they
are facing issue related to increase in
the cost of operations. This decline the
sales of George’s dinks that impact
negatively on net margin and revenue
of company.
Technique
to recognize
issue
The finance manager of Innocent
Drinks make use of bench marking
approach in order to compare its
financial performance in an
appropriate manner.
Mangers of respective organization
adopt KPT approach in order to gain
an understanding about financial
problems faced by company. It is
determined that it is usually take place
by emphasizing on financial
characteristics accompanying to
expenditure and revenue as well.
To figure out financial problems MA is used
There are different methods of accounting system that is combine with the process and
operations of the organization. It assist business entity to resolve financial issues in an effective
and proper manner. For instance, in above section two financial problems is resolved with the
assistance of price optimization system and cost accounting method. This directly shows the
contribution of management accounting system in dealing with financial issues.
Planning tool to figure out financial problems.
It give detail information to the directors and managers which is related to estimated
income as well as expenses. In order to resolve financial issues, it is determine that such
information is beneficial and utilized by management. For example, the above give business
entity shows planning tools such as cash budget, capital budgeting and many more (Taschner and

Charifzadeh, 2020). In addition to this, such plans will help company in dealing with financial
issues and barriers as well.
CONCLUSION
From the above discussion, it is analyzed that management accounting system is an
effective method that assist an organization to maintain its operations for longer time frame. In
addition to this, it is conclude that management accounting and management accounting system
plays an important role on the overall success of an organization. Moreover, it is determine that
different financial techniques are key factors of an entity to attain higher growth as well as
development. Furthermore, it is analyzed that there are various financial issues arise in an
organization which can be solved by higher authorities under management accounting system.
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REFERENCES
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