Management Accounting: Principles, Techniques and Controversies

This report provides detailed information about Medium sized enterprise eastern engineering co. Ltd. which presents the role and function of the management accounts. Further, the report will provide information about different techniques and methods used by company for managing reports.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................3
1. Explaining the principles of management accounting and its importance in the company....3
2. Explaining the different techniques and methods used for management accounting reporting
.....................................................................................................................................................5
3. Explaining the advantages and disadvantages of the budgetary tools....................................5
4. Comparing how organization are adapting management systems to respond to financial
issues...........................................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Management accounting a systematic method used by the company to prepare reports
about the operations related to business. By preparing such reports managers make strategic
decision which is beneficial for the firm. The present study will provide detailed information
about Medium sized enterprise eastern engineering co. Ltd. Which presents the role and function
of the management accounts. Further, the report will provide information about different
techniques and methods used by company for managing reports. At last, the case study will
compare two organization how they are adapting management systems such as key performance
indicators, benchmarking and others to solve financial problems or deal with business related
issues.
1. Explaining the principles of management accounting and its importance in the company
Management accounting
Management accounting is the business practices which is done by managers of the
company in order to measure, interpret, analyse and identify financial information (Asiaei and
et.al., 2021). The managers of the firm prepare reports about financial transaction and other
operations of the business. It will help them to make strategic decisions which is beneficial for
the company. The main purpose of managerial accounting is to reduce losses and maximize
profit. The main principles are compiling and designing of accounts and to control accounting
systems.
Management accounting helps to forecast the future decisions whether it is investment
decision or other strategic decisions. It will help to forecast the cash flows within an
organization. It will help to understand the performance variances of the firm. By using
techniques and method, the managers can build on positive variance and remove negative ones.
If the management accounting is prepared in a systematic way then it is beneficial for business
plan.
Types of management accounting systems
Cost accounting system- generally, it is a system used by company in order to estimate
the product cost for valuation of inventory, controlling of cost and profitability analysis (Cost
accounting, 2021). The management of eastern engineering co. Ltd uses this method to lower the
business cost by controlling the business items.

Job costing system- with the help of job costing system, the company will be able to
track the cost associated with production and cost of materials, overhead and labour. It is useful
for company in order to determine if the job is profitable or beneficial.
Inventory Management system- The present company utilize the inventory management
system so that they can track their products easily throughout supply chain (Management
accounting, 2021). From purchasing to storing to selling finished goods as well as warehousing.
It provides information about method, approach, techniques that is used for inventory
management.
Price optimization system- This method is used by company to calculate how demand
varies at various price, how business they can obtain in levels of profitability. This can be easily
done after the overall study of changes in customer behaviour regarding product price.
Importance of management accounting.
 In order to make effective business operations and execute the business plan, the
managers use management accounting. In this way, different types of budgets are being
prepared in the department for proper planning (falih Chichan and Alabdullah, 2021).
The business reports are being prepared and submitted to the top-level management team.
Based on this report, the top management can take decisions about whom to promote or
demote or to reward. It will ultimately maintain motivation among the workers.
 The performance of every activity such as transaction or other business operations is
compared and measured. Management accounting is important for company to control
deviations and can make decisions. The firm can utilizes budgetary control system in
order to manager or control such aspects (Maheshwari, Maheshwari and Maheshwari,
2021). Communication is key factor for every successful business. Reports of eastern
engineering co. Ltd and its performance are sent to top management team for making
decisions.
 The management accounting is helpful for organizing the business activities and the
work. In order to achieve the business goals effectively, perfect coordinating is required
for finance, sales and productions.
 With the help of management accounting the company can eliminate various types of
wastage, defectives and other production work in order to improve the employees'
efficiency.

2. Explaining the different techniques and methods used for management accounting reporting
The management accounting reporting is used by the company for decision-making
process and measuring performance of the company (Fontenelle and Sagawa, 2021). It provides
the basic idea about the health of the firm. These techniques are being used for planning,
evaluating and regulating the financial position of the firm and highlights certain business
patterns before taking short term and long term decisions.
Cost report- This report is maintained by company to collect financial data and business
data which includes cost incurred. The business position and health of the company is obtained
by cost report. The company determine the units of costs and production.
Budget report- This report allows company to compare their actual performance and
budget related information can be obtained. At the end of the day, the management team of
accounts can analyse actual money spent and profit margin. In other words, it is also known as
financial reporting. The summary of this report involves business transactions totals, amounts of
budget and balances.
Accounting receivable ageing report- It is a report which is maintained by the company
to record unpaid invoice which allows them to keep track on debts (Gonçalves and Gaio, 2021).
This report is maintained by eastern engineering co. Ltd to categorizes accounts receivable of the
firm on the basis of times length. This method helps to determine the financial stability of the
company's clients whether they are able to pay their debts / outstanding or not.
Inventory report- The report in which detailed information is provided about existing
stock, sales, stock levels and profit earn out of it and purchase order. The present firm utilize this
technique to find out the details like which products are in demand, how much existing stock the
company have, inventory performance, which goods are selling fastest in the competitive market.
This report can help the top management team to cut costs and eliminate the risk of stock.
3. Explaining the advantages and disadvantages of the budgetary tools
Budgetary tools is basically a tool used by company to maintain financial records or data
which can be use to create variety of useful reports (Safarzadeh, Sharif and Hooshmandkashani,
2021). It will provide detailed information about budgets for a defined period. It is a wonderful
tool for the company to manage the finances, tool like spreadsheet can be useful to obtain
information about reports. This helps company to create separate section for expense and income

in real time. After that this information is being recorded to create annual projections and
maintaining finances of the firm.
Cash budget- A cash budget is being prepared by the company to estimate the cash
inflows and outflows which includes expenses paid by the firm, loans taken by the firm, revenue
collected and other payments.
Advantages
 By preparing this budget, the company
can find out the estimated projection of
cash position in the future decision-
making process.
 Cash budget will allow the company to
plan for future requirements and
maintain extra funding like bank
overdraft. The company can easily find
out the potential deficits.
 This budget will help the company to
outline the over expenditure so that
proper step can be taken to avoid any
uncertainty.
Disadvantages
 Nowadays, businesses have stopped
accepting or using cash amount for
certain business operations due to
digitalization and innovation. So, if any
individual wants to use only cash, then
it may be difficult to access few
services business may need.
 Thus, it is major disadvantage of cash
budget that it limits spending power
and overall productivity of an
individual or company.
 The another drawback of the Cash
budget is that it limits the ability of
company/individual to build a credit
profile.
Zero base budgeting- The budget in which business exercise starts from zero base in
order to prepare alignment with the company's goals and strategies.
Advantages
 The major benefit of using zero base
budgeting are it is focused business
operations, lowering costs and flexible
budgeting. The firm can customize the
cash budget in order to meet needs.
 This helps company to build their
annual budgeting report from zero in
Disadvantages
 The major drawback of using zero base
budgeting it requires more time to
manage or record data.
 Sometimes challenges are faced by
company when implementing zero base
budgeting. While managing this
planning tool, conflicts can arise

order to verify or record all the related
components .
between management team or
employees as it requires knowledge and
skills.
Activity based budgeting- This planning tool is used by the company to record and
analyse business activities to predict costs. It is a potential way to obtain or create business
efficiencies in order to develop budgets.
Advantages
 Activity based budgeting allows
company to find out the associated
costs for business and operational
activity. It will also give an idea about
drive costs.
 Further, it will also helpful to evaluate
the problems or issues which can
impact the performance and
profitability of a firm.
Disadvantages
 The major drawback of this planning
tools is that it is time-consuming
process and expensive method.
 This is just because all the business
activity related to associated costs are
taken into consideration and all the
related details on the basis of technical
activity must be maintained in the
books of accounts.
4. Comparing how organization are adapting management systems to respond to financial issues.
Benchmarking- Benchmarking is helpful to eastern engineering co. Ltd in many ways
such as it can provide details about financial performance of the company and how effectively
the firm is managing to perform as compared to its competitors.
Key performance indicators- This method is helpful for present company to measure the
key performance of the company against a set of goals, industry performance, employees
engagements and business objectives (Neri and et.al., 2021). It helps to find out the strategic and
operational achievement and comparison of business activities within similar sector. It includes
sales of product or services, market growth, market size, revenues or profitability, productivity of
the firm, customer base/ customer satisfaction level, retention of customers.
Balanced scorecard- This technique is helpful for the company to find out the strategic
management of business performance in order to identify internal operations and how to improve
business operations to help their external issues. These techniques help to evaluate the previous

performance of the company with relevant data and gives response or feedback on the basis of
detailed information to make better decision in the future.
Competitor analysis between-
Eastern engineering co. Ltd
 This company undertake the use of key
performance indicators to find out the
actual financial performance of the
company. An organization focus on market
growth, size of market, probability and
productivity and customer satisfaction
level, customer base/retention rates.
This method is adopted with the help of
personal interviews and surveys.
Sollatek UK
 On the other hand, sollatek undertakes
the use of balance scorecard to find out
the strategic management system and
company's performance.
 The company provides feedback to
employees individually on the basis of
their performance. So, that better
decision can be taken for future. The
firm utilize this tool in order to get
team members aligned.
CONCLUSION
To conclude, management accounting provides various benefits to the company and
managers. By evaluating the report it is noted that management accounting help company to
control of the business activity and take relevant action when needed. Further, it provides the
management and other team members the confidence to face regulators and other external
bodies. With the help of technique and method of management accounting system such as cost
accounting and inventory management system company can analyse the financial position or
health of the company.
In addition to that, the case study summarized that the firm is managing accounting report
such as cost report, inventory and budget report to measure the performance of the business. At
last, the case study concluded about the financial issues or problems which needs to handled
carefully or effectively and various ways in which organizations are adapting management
systems such as benchmarking and balanced scorecard to deal with problems.

REFERENCES
Books and Journals
Asiaei, K. and et.al., 2021. Green intellectual capital and environmental management
accounting: Natural resource orchestration in favor of environmental
performance. Business Strategy and the Environment.
falih Chichan, H. and Alabdullah, T. T. Y., 2021. Does Environmental Management Accounting
Matter in Promoting Sustainable Development? A study in Iraq. Journal of Accounting
Science. 5(2). pp.114-126.
Fontenelle, A. O. and Sagawa, J. K., 2021. The alignment between management accounting and
lean manufacturing: rhetoric and reality. Journal of Business & Industrial Marketing.
Gonçalves, T. and Gaio, C., 2021. The role of management accounting systems in global value
strategies. Journal of Business Research. 124. pp.603-609.
Ho, A. M., Lai, J. H. and Chiu, B. W., 2021. Key performance indicators for holistic evaluation
of building retrofits: Systematic literature review and focus group study. Journal of
Building Engineering, p.102926.
Maheshwari, S. N., Maheshwari, S. K. and Maheshwari, M. S. K., 2021. Principles of
Management Accounting. Sultan Chand & Sons.
Mesároš, P. and et.al., 2021. Impact of enterprise information systems on selected key
performance indicators in construction project management: An empirical study. Wireless
Networks. 27(3). pp.1641-1648.
Neri, A. and et.al., 2021. A triple bottom line balanced set of key performance indicators to
measure the sustainability performance of industrial supply chains. Sustainable Production
and Consumption. 26. pp.648-691.
Safarzadeh, M. H., Sharif, A. and Hooshmandkashani, A., 2021. Investigating the Quality
Dimensions of Management Accounting Services from the Perspective of Internal
Managers. Management Accounting. 14(49). pp.167-185.
Online
Management accounting. 2021. [Online]. Available through: <https://cleartax.in/s/management-
accounting>
Cost accounting. 2021. [Online]. Available through: <https://cleartax.in/g/terms/cost-
accounting>