Management Accounting Systems and Techniques

Added on -2020-12-09

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Management Accounting
Systems & Techniques
TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A. Management accounting and different types of accounting systems................................1
B. Different types of management accounting reports and its importance............................2
C. Benefits of Accounting System.........................................................................................3
D. Critical evaluation of management accounting systems and management accounting
reporting that are integrated in Nisa.......................................................................................5
TASK 2 ...........................................................................................................................................6
A.1. Absorption Costing and Marginal Costing Methods......................................................6
A.2. Production of income statement.....................................................................................7
B. Applicability of formula of break even..............................................................................9
C & D. .................................................................................................................................10
TASK 3..........................................................................................................................................10
A. Advantages and Disadvantages of planning tools for budgetary control........................10
B. Application of the planning tools for preparing, forecasting and analysing budgets......12
C. Management accounting systems to respond to financial problems................................13
D. Analysing management accounting techniques that could respond financial problems. 14
E. Evaluation of planning tools to solve financial problems................................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................18
INTRODUCTION
Management Accounting is the process of preparing accounts and management reports
that provide company with timely and accurate information which is required by managers to
make day to day and short term decisions. In the presented report, research and study is being
conducted on the basis of Nisa, a retail chain in UK in retail industry. This assignment contains,
management accounting systems, reports, their benefits and needs, planning tools with their pros
and cons of budgetary control. Practical aspect of the project is fulfilled by income statement,
which was made on the basis of two methods of costing; adsorption and marginal. Further,
break-even point analysis is also done accompanied by application of cash budget with their
interpretation and suggestions. Moreover, this project also contains, comparison between Nisa
and Vectair holdings on the basis of using different financial systems to respond financial
problems. This project is concluded with the brief understanding of management accounting.
TASK 1
A. Management accounting and different types of accounting systems
According to IMA: Management accounting is a type of profession in which it involves,
devising planning, partnering in management decision making and performance management
systems (Schaltegger and Burritt, 2017). Following are different types of management
accounting systems:
Single Entry System: This is the most basic type of accounting system which is
commonly used in small businesses which have simple and few operations. In this there
are no journal entries made to balance accounts so there are high chances of errors.
Double Entry System: This system is more accurate as well as complicated too. This
system guides that each credit entry must be accompanied by an equal debit entry and
vice versa. This make error more visible and accounting process more accurate.
Manual System: This system has no involvement of computer in the whole accounting
process. It is the responsibility of accountant to record all journal entries in all kinds of
journals as well to record their corresponding adjustments and entries. The accountant
must file tax forms, make all calculations, prepare financial statements, etc.
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Computerized System: It is a use of a computer program to accomplish accounting
functions. This type of accounting with such system can only be done with an accountant
having specialisation in that software.
Cost Accounting System: It is an internal part of an entrepreneur's information system
and refers to the tracking of cost and costs and expenditure are tracked with the help of
allocation system.
Job Costing System: It involves the process of accumulating information about the costs
which is associated with a specific production or job service.
Price Optimisation: To determine response of customers to different prices for its
products and services companies take use of mathematical analysis through different
mediums (Adesina, Ikhu–Omoregbe and Aboaba, 2015). In simple words it is the process
of searching sweet spot of pricing or maximising price against customer's willingness to
pay.
Inventory System: Inventory in every company is the most valuable asset of that
company. These are of two types; perpetual and periodic. In periodic inventory system,
inventory is updated on a monthly or annual basis. Whereas, in perpetual inventory
system inventory is update alternative to a periodic system.
Examples of accounting systems: Manufacturers, Retailers, Distributors, Construction,
Non-profits, etc. Above mentioned accounting systems are used by Nisa to evaluate accounting
transactions.
B. Different types of management accounting reports and its importance
Types of accounting reports are as follows which are used by Nisa in recording their day
to day transactions:
Budget Report: This type of report help Nisa to analyse business performance and
enables managers to analyse their own department's control costs and performance.
Actual expensed from prior years is basically the base on which budget report of the year
is estimated. This reports can further be used by owners and managers in order to provide
employees with incentives.
Accounts Receivable Ageing: It is a tool which is used to manage cash flow in case if
credit to customers in business are expanded. Customers balances are break down with
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the help of this report. Separate columns for invoices such as; 30 days late, 60 days late
and 90 days late or more are included in most of these ageing reports.
Job Cost Reports: The expenses for a specific report which is financed by Nisa are
shown in this kind of reports. Job's profitability could be evaluated by matching these
reports with estimated revenue (Agu, Nweze and Enekwe, 2016). Nisa was also assisted
in identifying higher earning areas of the business so more emphasis could be given by
company to focus additional efforts where they are needed instead of wasting time and
money on jobs with low profit margins.
Inventory and Manufacturing: Nisa can use managerial accounting reports if it
maintains a physical inventory or produces products.
Importance of Managerial Accounting Reports:
1. Provides Information: It is important as different levels of management are provided
with information.
2. Helps in Selection: It helps in bringing out many alternatives out one profitable
alternative is to be chosen by management.
3. Role in Control System: A management can take over control over organization with
help of this tool.
C. Benefits of Accounting System
Following are some benefits of management accounting system that Nisa experienced
after its implementation:
Accuracy: Nisa experienced that these accounting systems have increased their
efficiency as people make errors and a computerised accounting system minimises those
errors of people. These accounting systems reduces calculation errors, simplify the data
process and accurately account the required information such as general ledger, profit and
loss, balance sheet and tax.
Automation and Productivity: A computerised system eliminate unmanageable and
increases the productivity of Nisa. It is less time consuming as compared to manual
accounting (Ismail, Isa and Mia, 2018). As it was analysed that most of the times
accounting software are more reliable and have better task performance. It is also noticed
that by multiple number of authorised parties information regarding business accounts
could be independently entered into an automated system.
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Compatibility: By implementing computerised accounting system Nisa enabled itself to
share financial information more easily. It is also facilitated that one person can speak to
other if both companies are using same computerised accounting system.
Nisa was benefited by above mentioned all points which reduces the burden of
manual accounting and made it easier to be more connected and share information.
Cost accounting
Advantages Disadvantages
By fixing standard for everything, it
eliminates wastes.
Cost reduction could be achieved by
following new and improved methods
of production.
For price fixation of product, total price
which is available in costing records is
very useful. (Advantages and
Disadvantages of Cost Accounting,
2018).
Company could utilize past
performances which are available in
records but decision is taken on the
basis of future.
Cost is not same every year.
Problems related to work, study, time
and motion are not possible to solve in
costing system.
Job costing
Advantages Disadvantages
Job costing gives separate identity to
earned profit from each job.
Estimation could be taken on the basis
of past records of cost of job in job
costing. (Advantages and
Disadvantages of Job Costing, 2018).
In job costing the is no standardization
of job.
There are fewer chances of controlling
costs since only after incurring the
expenses in job costing the controlling
steps are taken.
Inventory system
Advantages Disadvantages
Reduction in Costs: Software can also Price: A lot of small and medium sized
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