Management Accounting Systems and Techniques: Principles, Advantages, and Limitations

This report discusses the principles of management accounting and the importance of integrating management accounting systems. It also covers techniques and methods of management accounting reporting, advantages and disadvantages of budgetary tools, and ways to adapt management systems to respond to financial problems. The subject is Management Accounting, and there is no specific course code, course name, or college/university mentioned.

UNIT 5 ASSESSMENT

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK-1............................................................................................................................................3
Principles of management accounting and importance of integrating management accounting
systems.........................................................................................................................................3
Techniques and Methods of Management Accounting Reporting :............................................4
Advantages and Disadvantages of the Budgetary Tools :...........................................................5
Ways to adapt the Management Systems while respond to the Financial Problems .................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
The process of accounting which involves formulation of goals for an organization by the
process of determining, measuring, examining, interpreting and communicating the information
to the users of information. The present report is based on the management accounting systems
operating in Eastern Engineering Co. Ltd. The report aims to identify the importance
management accounting principles and how companies are adopting management systems with
respect to the financial problems.
MAIN BODY
TASK-1
Principles of management accounting and importance of integrating management accounting
systems
There are certain principles of management accounting followed by Eastern Engineering
Co. Ltd in order to make effective decisions based on the accounting information. They are:
Presentation of authentic data
The principle of presentation of authentic data states that the information provided by an
organization within the accounting records should be authentic, correct and free from bias
(Hiebl, and Richter, 2018.). This is so, because the information is used by a number of people
including the internal as well as the external users of information in order to determine the actual
position of the company in the market and formulate necessary decisions. The information
provided must be free from personal opinions and judgements towards an organization.
Principle of punctuality
According to the principle of punctuality followed by the Eastern Engineering Co. Ltd,
the accounting statements should be prepared on time and needs to be updated on a regular basis.
If the accounting information is available with the users of accounting information, it will be
easier for them to take right decisions on right time. The internal users of accounting information
includes the departments within the organization such as inventory management team, finance
department, marketing team and many more. The availability of information helps them to
identify the budget they to proceed with their function and how they can take steps to reduce
their department cost. Similarly, the external users of information includes stakeholders. They
invest the money in an organization and for the same they need to determine the profitability and
the actual position of the company.

Forecasting of future problems
This principle of management accounting states that the preparation of financial
statements should be in such a manner that the users of financial information are able to identify
the problems that might arise in the future course of action of an organization (Maheshwari,
Maheshwari, and Maheshwari, 2021. ). If it is found that there is a possibility that a problems
might arise in the future, it should be duly informed to the management in order to take
precautionary steps to avoid its occurrence.
It is important for an organization to use integrated management accounting systems as it
helps the organization in a number of ways. This includes:
 With the help of integrated management accounting system, an organization does have
the need to manually update the data. As the transaction takes place, the system
automatically records the transaction.
 The integration of accounting management systems helps an enterprise in identifying the
job costs and commissions accurately as all the postings are carried out automatically.
Therefore, the system has all the required information which is necessary in order to
calculate the cost.
Techniques and Methods of Management Accounting Reporting :
Management accounting reports are the reports prepared with the view to focus on the
financial and management accounting. The reports are used in planing, making decisions and
analysing the performance of the organisation. The reports are generated continuously in the
financial and accounting period as per the requirements of the business. The reports are :
 Budget Reports : The reports generated identify and analyse the performance of the
company in the near future. The reports emphasize on improving the company's
performance and control the costs. The reports ascertain the costs and the position the
company wants to achieve. The budgeted reports helps in comparing the actual results
with the estimated budgeted reports results and find out the ways to control the
deviations if any. The budgets will help the organisation in forecasting the position of the
company and integrate efforts in achieving the targets (Church, Kuang,and Liu, 2019.). It
helps in controlling the expenditure levels of the company if they are too high to bring
back to the budgeted amount. The budget reports help in controlling the financial results
and maintaining the profitability of the business.

 Accounts Receivables Reports : These reports focus on managing the receivables of the
company to ensure the timely payment of the outstanding dues of the customers. The
reports prepared will help in breaking down the clients whose invoices are outstanding
and ensuring the defaulters who are affecting the cash flow of the business. The accounts
receivables reports emphasized on the collection process and the credit policy of the
company (Malitskaya, and et.al., 2019). It points out the ways the company should
tighten and maintain a strict credit policy. This will help in maintaining the liquidity of
the company and reduction of the bad debts of the company.
 Inventory and Manufacturing Reports : The inventory and manufacturing reports are
useful for the organisations working in the manufacturing sector. These reports help in
ensuring efficient and optimum utilisation of the inventory to avoid any wastage and
inefficiency. The reports help the company in managing the inventory and ordering it as
per the requirements, to reduce the carrying and storage cost of the excess inventory.
These reports also includes the labour and overhead costs (Okeke,and et.al., 2022.). With
the help of these reports, it is easier for the managers to compare and analyse the
differences in the operations and search for the opportunities that will improve the areas
exploited.
Advantages and Disadvantages of the Budgetary Tools :
The Budgetary tools are used for conducting the budgeting process, the budgeting
process is the method of preparing budgets and improving the areas to ensure comparison
between the budgeted and actual results. With the help of budgetary tools, it is easier to prepare
and implement the budgets as per the working of the organisation. The types of budgetary tools –
Incremental budgeting, Zero based budgeting and Activity based budgeting.
Benefits of Budgetary Tools :
 The budgetary tools help in eliminating the unnecessary activities and saving the costs
thus ensuring higher competitive edge of the company in the market.
 It helps in efficient allocation and utilisation of the resources on the basis of the needs
and requirements in the future (Pavlov, 2020.).
 The incremental budgeting helps the business by having stable budget every year with the
minimal changes and detailed analysis.

 The tools are the motivating factor of the employees provides the managers with the path
to move towards the achievement of the goals and the objectives.
 The budgetary tools help the management in controlling and monitoring the actual results
with the expected results thus adapting the new strategies and actions to improvise the
operations and functions of the business.
 The budgetary tools help the business in concentrating on the budgeting process and
expanding the business capacity towards the profitability and higher positioning of the
business.
Limitations of Budgetary Tools :
 Conducting research and deep analysis of the process with the budgetary tools is a very
time-consuming and requires efforts.
 The incremental budgeting is a disadvantage as it prepares the budget on the historical
basis with the view point of minimal changes which leads to lack of updated technology
and zero incentives to managers.
 Due to the basis of historical budgets while preparing budgets, budgetary slack is the
issue faced by the organization which leads to decrease in the growth of the revenue and
increase in the expenses of the organisation.
 The budgetary tools might cause the dysfunctionality of the management because of the
target of achieving more than mentioned in the budgets.
 The tools might analyse the environment and operations in the wrong way thus, this may
lead to low budgetary levels, resulting no benefit and lower output levels of the
organisation. This might cause high operating costs and low profitability (Clark, 2020 ).
 Budgetary tools are only primarily concerned regarding the cash allocation , specific
activities and the outcomes for the transactions by the business. The budgets do not
consider the other management activities or subjective issues including product quality
and services provided to the customers.
Ways to adapt the Management Systems while respond to the Financial Problems
Management Systems refers to the policies and procedures set up by the organisation for
attaining the tasks and goals of the organisation. The organisation's operations includes the
management of workers, cash management, revenue management, total quality management of

the products and services provided,financial success, client relationship, maintaining the
environment, and so on. Thus, management system covers all the areas of the organisation that
requires focus and improvement for maintaining the performance and profitability of the
business.
Financial Problems Solutions
Eastern Engineering Co. Ltd. Vision Engineering Co. Pvt. Ltd.
Excessive Debt To resolve the issue of
excessive debt , the company
adapted the strategies to
balance the debt to equity
ratio. The company identified
the areas where cost can be
reduced and selling the
unused and excess
equipments (Setiawan, and
Rafiani,2021. ). It also
adapted to strict and tight
credit policy to avoid any bad
debts and ensure timely
payment of the due invoices.
Initially, the company adapted the
way of consolidating the payment of
loans in one go thus reducing the
negative impact on the credit score.
The company opted for balancing the
debt to equity ratio by reducing the
debt and maximizing the equity in the
business by issuing shares and
derivatives to the investors.
Cash Management To resolve the cash
management issue, the
company requested the
suppliers to extend the
payments cycle of the
suppliers and giving them
option of financing of the
payment. This will manage
the credit score and the
To solve the cash management
problem, the company focused on
improving the cash flow cycle of the
organisation by understanding the
outflow and inflow timings of the
cash and why the company constantly
running out of cash. The company
should understand revenue
management process and understand

relationship with the
suppliers. The other way to
deal with the cash
management issue was to
maintain the inventory as per
the requirements that is
reduce the risk of
overspending and control the
cost of storing and managing
of the resources thus helps in
reducing the cash flow
towards management and
warehousing of the excessive
inventory.
the need of inventory management.
The company ensured that the
managers of the company should
posses appropriate skills and abilities
of managing the cash resources. It
identified the project where the
investments should be made and
which are profitable to ensure inflow
of cash, thus maintaining the liquidity
of the business. The company should
consistently prepare and review the
cash flow statement to ascertain the
areas of over spending and higher
expenditure. (Faque, 2020.) The
company should also focus on the
accounts receivable management to
ensure that the company is receiving
timely payments from the customers
thus avoiding the risk of heavy bad
debts and loss of cash resources.
CONCLUSION
From the assessment, it is concluded that for better functioning and profitability of the
business thee are certain areas and tools need to be considered. The assessment presented the
principles of management accounting which are important for the organisation. Further,it
assessed the different techniques of the management accounting reporting. Next, it identified the
benefits and limitations of the tools of the budgetary. Lastly, it showed a comparison between
two organizations that how they manage the financial problems with the help of management
systems.

REFERENCES
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Clark, B. Y., 2020. The Impacts of Autonomous Vehicles on Local Government Budgeting and
Finance: Case of Solid Waste Collection. National Tax Journal.73(1). pp.259-282.
Faque, M., 2020. Cash management strategies and firm financial performance: A comprehensive
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Maheshwari, S.N., Maheshwari, S.K. and Maheshwari, M.S.K., 2021. Principles of Management
Accounting. Sultan Chand & Sons.
Malitskaya, V., and et.al., 2019. Development of accounts receivable management in Russia.
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