Importance of Finance and Accounting in Business

The importance of finance and accounting is a crucial aspect for the success of an organization. It involves managing capital, creating budgets, and controlling losses by considering necessary facts or figures. Effective management accounting practices are essential for businesses to achieve their goals and stay competitive in today's market.

Management Accounting

TABLE OF CONTENTS
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Definition of management accounting and their essential requirements.........................1
M1: Benefits of using management accounting systems.......................................................3
P2: Various types of accounting reporting methods...............................................................3
D1: Critical analysis of accounting report systems................................................................4
TASK 2............................................................................................................................................4
P3: Various kind of costing method used for calculating net profit.......................................4
M2: Analysis of various accounting techniques....................................................................7
D2: Critical evaluation of information about incomes statement...........................................8
TASK 3............................................................................................................................................8
P4: Merits and demerits of various types of budgets.............................................................8
M3: Analysis of various planning tools................................................................................10
D3: Critical analysis of financial issues...............................................................................10
TASK 4..........................................................................................................................................11
P5: Comparison of various ways a company used to deal with financial issues..................11
M4: Evaluation of financial issues.......................................................................................11
Conclusion.....................................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
This project is all about providing crucial information about various management
accounting aspects those are associated with an organisation. It is utmost vital part of any
business to record all their financial transactions in their respective statements so that valuable
outcomes can be determined effectively. The primary motive of an organisation is to make
proper utilisation of resources which are helpful for the company to attain long term aims and
objectives in quicker manner. This project is providing valuable perspective about types of
accounting and reporting systems. Apart from this, certain types of costing methods are taken as
help to calculate net profit for the company. Although merits and demerits of using types of
budget that are helpful for attaining future goals in near future. Lastly, some vital financial tools
are used that are effectively responsible for resolving financial issues those are arising in an
organisation (Hilton and Platt, 2013).
TASK 1
P1: Definition of management accounting and their essential requirements
In the current scenario, it has been seen that management is always looking to make use
of all those systems that are effectively reliable to record all financial and non-financial
transaction in their respective statements accurately. Accounting is said to systematic process of
recording, summarising and evaluating everyday transactions that are done by the company
during their regular course of operations. It is an important aspect that the objectives of the
financial accounting are not to study the worth of company. This used to reveals gain or loss for
a given period of time and value of Tech (UK) total assets and owners equity. Management used
to provide vital aspects related with planning, organising, controlling and directing all
information’s in effective manner (Wickramasinghe and Alawattage, 2012).
Definition: It is said to be cost accounting process which is used to analyse business total
cost and operations to formulate internal financial reporting and account to aid manager’s
decision making procedure in respect to attain their aims and objectives.
Management accounting systems are known as confidential internal report that assists
managers in future decision-making. It used to guide employees and managers that working
inside an organisation.
Importance of using MA:
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There are various significant aspects those are related with management accounting
systems. Some of them are discussed underneath:
 Effective decision-making: It is one of the primary systems for an organisation by which
they can easily be able to attain their objective by setting appropriate decision in near
future time. It has been determine that if company used to make effective decision then
the chances of getting better results can be enhanced.
 Increase profitability: A health business can only attain positive outcomes in case they
are using valuable accounting systems in right manner. This will directly increase
profitability as the company would be able to sell maximum products (Schäffer, 2013).
Management accounting Financial accounting
It is held responsible for making valuable rules
and regulations that
The accountant needs to follow all those
policies and laws that are made by upper level
of the department.
The individual is not having any kind of issues,
apart for this they need to decide companies
overall operations by using performance of
Tech UK.
All the statements that are prepared during an
accounting year are reported in more particular
manner by using financial data of the company.
Types of management accounting system:
Cost accounting system: It is known as one of the most important aspects for an organisation that
is held important for recording, summaring and determining valuable alternative that are
effective for Tech UK. The major significance of this system is to delivery crucial advices to
their department about one of the major course of actions that are assistance with the cost of
production.
Inventory management system: According to this particular system that assist managers to
make use and control stocks those are kept by the company. It seems to continuous process for
the aims to manager inventories of Tech UK. There are various types of techniques by which
stock can be managed such as FIFO, LIFO and AVCO methods.
Job costing system: It is an essential aspect for an organisation that is used for making
estimation of total expenses and costs a company is incurring on production of products or group
of product. Through this, managers would be able to generate valuable outcomes for the
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company. The total time a product is taking to manufacture are determining by using this
particular report.
Price optimisation system: According to this particular accounting system a company
would be able to determine perception of customer regarding their products prices which are set
by them. The main aim is to examine reaction of them, whether they are satisfied with the prices
range. It is consider as one of the main system for recording the information for the company
(Bennett, Schaltegger and Zvezdov, 2013).
M1: Benefits of using management accounting systems
For every business, it is necessary to make proper utilisation of accounting systems so that
chances of mistakes can be overcome. All the above mentioned types of systems are having
equal benefits and limitation. Like cost accounting will guide a manager to use appropriate
amount of costs and expenses. While inventory management can lead to control overall stock
position of the company at the same period of time.
P2: Various types of accounting reporting methods
In every business organisation, every department is working equally for the purpose of
increase profitability as well as financial stability for an organisation. This would be essential for
them to take competitive advantages over other companies. Reporting is said to be important
aspects by which company would be able to present their financial position in front of their
investors and other financial institution that are responsible for making capital investments in
their coming projects. There are various sources of data collection which are used for the purpose
of preparing financial reports for Tech UK (Chan, Wang and Raffoni, 2014). The primary motive
of an organisation to prepare report to control and analyse all its expenses that are incurred
during an accounting period. There are various types of accounting reporting methods that are
used by an organisation to control their operations that are done during the time. Some of them
are discussed underneath:
Performance report: This seems to be utmost important report that indicate overall
performance of an organisation by taking data from past with the present one. The will create
specific information that whether a company will be sufficient enough to fulfil their obligations
in right manner. Mainly, it assist managers to help make valuable training program for
employees as well as aid them to improve the performance of the company in right manner.
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Account receivable report: It is said to be one of the vital report that provide valuable
information about total lists of unpaid invoices and credit memo that remain due from debtors
side. It is mostly associated with evaluating total time in which debtors used to make payment of
their outstanding balances.
Inventory management report: This particular report is made for the purpose of
analysing all the essential stock detail through tacking overall orders that are made by the
company during the period of time. All information related with opening and closing of stocks is
taken into considerations. The main aims of doing so are to examine all level of mistakes that
arises while the time of production process (Fourie, Opperman Scott and Kumar, 2011).
Job costing report: As per this report a company would be able to record all information
that is collected during the time of producing product in each job size. There are various types of
costing which are needed to be taken into account. Such as batch costing, process and contract
costing. All these are equally responsible for increasing profitability for Tech UK.
D1: Critical analysis of accounting report systems
In accordance with getting maximum return in coming period of time, it is essential to make
use of all reporting systems in reliable manner. This will attain in increase future aims and
objectives in more easy ways. All the above mentioned reporting systems are effective for the
company. Performance report can lead to guide investors about company’s current year
performances. While inventory report is used to control and evaluate total stock level of an
organisation. Further, this will enhances overall productivity of the company in near future
period of time.
TASK 2
P3: Various kind of costing method used for calculating net profit
Cost is said to be the value of amount which is to be paid by the company in respect to get
something in return. This will be direct or indirectly related with production of products and
services (Hansen, 2011). The main motive of using these costing is to make particular evaluation
about total earning that they are going to invest in their production of products. Cost is simply an
important aspect for Tech UK company to examine their total costs required for the production
of one unit of products. It has been found that there are various types of costs those are
associated with the production. Such as normal, actual and standard costs. Apart from this, some
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of the other costing method is also those are effectively responsible for analysing performance of
an organisation. Some of them are discussed underneath:
Absorption costing: It is known as one of the main cost accounting systems which are
used during production of product and services of an organisation. It consists of both variable
and fixed costs at the same point of time. Because of this particular nature, it is known as full
costing method. It is not taken into account as more reliable for making future decision making.
Marginal costing: This seems to be one of the primary costing methods which are used at
the time of additional units produced by the company with the available resources. It includes
only variable cost and fixed costs are not taken into consideration for evaluating net gain of Tech
UK. This is utmost crucial costing method which is reliable for upcoming decision making
(Amoako, 2013).
Income statement as on September by using Marginal costing method:
Working 1: Calculate variable production cost £
Direct material cost 8
Direct labour cost 5
Variable production O/h 2
Variable production cost 15
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
Nil 2000*15 = 30000 500*15 = 7500
Net profit using marginal costing ￡Amount £ Amount
Sales value
Less: Variable costs
Stock at the begining
Cost of production
Stock at the closing
NIL
30000
(7500)
52500
(22500)
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Variable sales overheads
Contribution
Less: Fixed costs:
Fixed Production overheads
Fixed Selling overheads
15000
10000
(7875)
22125
(25000)
Net loss -2875
Income statement on the basis of Absorption costing method
Selling Price per unit ￡35
Unit costs
Direct materials cost ￡8
Direct Labour cost ￡5
Variable Production overhead ￡2
Variable sales overhead ￡5.25
Budgeted production during the year is 3000
units
Production overhead: In this budgeted cost is £15,000and Actual cost is £10,000
Selling cost: In this budgeted cost is £10,000and Actual cost is £7875
Absorption costing working notes
Working Note 1: Calculate full production cost
Direct material ￡8
Direct labour ￡5
Variable cost ￡2
Fixed cost ￡5
Total ￡20
Working Note 2: calculate value of inventory and production
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Opening inventory Production Closing inventory
0 2,000*20 = £40,000 500*20 = £10,000
Working Note 3: under/ over absorbed fixed production overhead
Actual fixed production: ￡15000
Fixed overhead: ￡10000
Total £5000 (under absorbed)
Net profit using absorption costings ￡Amount £Amount
Sales value
Less: Cost of Sales:
Opening stock
Cost of production
Closing stock
(Under)/Over absorbed fixed prod. O/h
Gross Profit
Less: Selling Expenses
Variable sales expenditure
Fixed selling expenditure
NIL
40000
(10000)
7875
10000
52500
(30000)
(5000)
17500
17875
Net loss -375
M2: Analysis of various accounting techniques
In order to deal with internal or external department of an organisation the manager of
Tech UK need to use various accounting tools and techniques. The overall growth and
sustainability can only be attaining by proper utilisation of resources. Some effective techniques
are standing costing which is used by managers to compare the results with the actual one. While
marginal costing techniques is used to determine extra cost which will be paid by the company
for producing products and services.
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D2: Critical evaluation of information about incomes statement
Reconciliation statements Amount
Profit under absorption -375
Closing stock 500*5 2500
Profit under marginal 2125
According to the above reconciliation statements, it has been determine a company need to
have two effective option in order to analyse net gain for Tech UK company. In accordance to
examine reliable results the managers need to consider all essential aspects in right manner. The
results are showing that total net profit of 2125 is generated by the company during the time. The
difference are arises because of fixed costs treatments.
TASK 3
P4: Merits and demerits of various types of budgets
Budget is all about designing an appropriate plan or strategy for controlling expenses
incurred at workplace in order to maximize the profit level of an association. It covers the
element related with capital of an organization as funds are seen as lifeblood for overall
company. However, every enterprise believes in designing effective budget for managing their
expenditure in most suitable manner (Klemstine and Maher, 2014). Additionally, it is helpful for
corporations in various manners such as; control losses by estimating future expenses, allocate
cost for each or every business activities, assist employees to how to accomplish their job role
and so on. Hence, it has been understood that preparing budget for each or every department is
highly indispensable for company success and development. Beside this, various types of
budgets are also identified which is discussed as follows:-
Master budget:- It’s all about overall management of organizational funds and all the
business activities are falls under this category only. It means, it consist of various funds
allocated for distinct department of an association. However, all the necessary factors are
considered while making master budget such as; sales of a firm, working capital, operating
expenses, several sources of income and so on (Lim, 2011). Basically, it supports in assisting
enterprise in various situations as well as entire staff members towards corrective path. Thus,
some of the major benefits and drawbacks of master budget is expressed as follows:-
Merits-
 All the functional accounts are in a single report.
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 It helps in providing estimated profit of an association.
 Provides accurate information about balance sheet.
 Highly beneficial for top management.
Demerits:-
 Chances of confusion due to long process.
 Cost consuming.
 Requires expertise and specialist suggestion.
Production budget:- Manufacturing department is liable for designing an outstanding
goods for gaining attention of maximum customers. Thus, for designing qualitative item an
organization is going to required sufficient amount of funds for accomplishing business activities
in more effective manner. It includes various cost such as; labour, administrative, overhead,
working capital and so on. Some of the major benefits and drawback of this budget is described
as follows:-
Benefits:-
 Plant and machinery is perfectly utilized in suitable manner.
 Aids in reducing production expense.
Demerits:-
 Creates problems while designing a single budget because labour cost get maximized.
 Consume high range of cost.
Apart from all the above budget there are also some other monetary planning are
designed for accomplishing business activities in more appropriate manner. For example; cash
flow, static budget, financial and so on.
Alternative process of budgeting:
 Determination on budget needs which is said to be primary aim of managers before
preparing budget.
 Gathering valuable data from various departments those are working at inside of the
company (Van der Stede, 2015).
 Obtain sufficient amount of capital from various sources of an organisation such as short
and long term sources.
 Take approval of budget request from higher authority through gathering appropriate
recommendation from various members.
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 Make up gradation in the budget techniques in more reliable ways through using master
budgets prepared during the time.
 Do review and collect essential feedbacks from various staffs and members before
releasing into the market.
Pricing method:
 Cost plus pricing: It is said to be one of the easy method by which products can be sold
out to specific customers as per their affordable ability.
 Prices skimming: In these pricing techniques is setting the costs in initial stage at more
high and make reduction after the competition get slow down.
Importance of using planning tools:
It has been seen that budgets can only be controlled by the use of appropriate planning
tools. Some of them are forecasting tools which are responsible for estimating total costs and
expenses that are going to be incurred by the company in coming period of time. While
contingency tools are used by the company for controlling all risk those are associated with the
company during the period of time.
M3: Analysis of various planning tools
Every business is always ready to deal with all essential report that is useful in order to
control budgets for TECH UK. There are various types of planning tools which are equally
reliable and accurate for controlling budgets that are prepared by an organisation. Forecasting
tools are more valuable for the company as it is used to estimate future costs and expenditure of
the company. While scenario analysing tools are also having certain benefits which will working
in specific situation those are arises in an organisation.
D3: Critical analysis of financial issues
In accordance to get best possible outcomes in coming period of time the managers need to
make proper analysis of financial problems those are present in an organisation. These are
directly make impacts on the reputation of Tech (UK) limited company. Such kind of issues can
be happens because of minimum product quality and bad services delivery to their customers.
While some of them are arising because of outdated technologies.
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TASK 4
P5: Comparison of various ways a company used to deal with financial issues
There are various types of financial issues those are arising in an organisation. Some of
them are directly make impacts on productivity and growth of the company. Below mentioned
various financial problems those are available in Tech UK. Such as:
 Benchmarking: It has been seen that various kind of financial issues are arises without
having right standard set by the company. Benchmarking tool provide appropriate set
standard to the company in respect to other organisation.
 Key performance indicators: There are various kinds of financial and non-financial
issues associated with the company. It can be overcomes by using performance indicators
that works through making comparison of total past performance to that with present one.
 Financial governance: It is known as certain rules and regulation made by the
government in respect to operated business in right and systematic manner. By using this,
maximum chances of mistakes can be reduce in quicker manner (Lavia López and Hiebl,
2014).
Characteristics of management accountant:
There are various types specific characteristic of accountant. Some of them are:
Reliable: All the decisions that are made by accountant are used to control performance and
other financial data in effective manner.
Cooperative person: An accountant needs to have specific aspects which will lead to make
communication among each other to determine valuable outcomes in near future period of
time.
M4: Evaluation of financial issues
In accordance with all the information collected by the company after making analysis of
financial issues those are arises in an organisation. There are various ways problems can be
occurring. Such as because of minimum training provided to the employee they are not being
able to get proper outcomes (BSC Terminology: Perspectives, 2017). With the use of various
financial tools they can resolve all of them. Balances scorecard is another important techniques
which can help managers to resolve financial issues.
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Conclusion
From the above report it has been summarized that finance is seen as most indispensable
aspect for success of an organization because all the business activities are totally depend upon
them only. It means company needs to make plans for managing capital of an association in
appropriate manner in order to control the possibilities of losses. Along with this, company is
involving in designing an impressive budget for designing effective schemes by considering
necessary facts or figures. Additionally, various types of reports are designed by an organization
for recording confidential information in correct way. It helps in controlling losses by
considering necessary facts or figures in a defined time period.
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REFERENCES
Books and journals:
Hilton, R.W. and Platt, D.E., 2013. Managerial accounting: creating value in a dynamic
business environment. McGraw-Hill Education.
Wickramasinghe, D. and Alawattage, C., 2012. Management accounting change: approaches
and perspectives. Routledge.
Schäffer, U., 2013. Management accounting research in Germany: From splendid isolation to
being part of the international community. Journal of Management Control. 23(4).
pp.291-309.
Bennett, M.D., Schaltegger, S. and Zvezdov, D., 2013. Exploring corporate practices in
management accounting for sustainability (pp. 1-56). London: ICAEW.
Chan, H.K., Wang, X. and Raffoni, A., 2014. An integrated approach for green design: Life-
cycle, fuzzy AHP and environmental management accounting. The British Accounting
Review. 46(4). pp.344-360.
Fourie, M.L., Opperman, L., Scott, D. and Kumar, K., 2011. Municipal finance and accounting.
Pretoria, South Africa: Van Schaik.
Hansen, A., 2011. Relating performative and ostensive management accounting research:
reflections on case study methodology. Qualitative Research in Accounting &
Management. 8(2). pp.108-138.
Amoako, G.K., 2013. Accounting practices of SMEs: A case study of Kumasi Metropolis in
Ghana. International Journal of Business and Management. 8(24). p.73.
Klemstine, C. F. and Maher, M., 2014. Management Accounting Research (RLE Accounting): A
Review and Annotated Bibliography. Routledge.
Lim, M., 2011. Full cost accounting in solid waste management: the gap in the literature on
newly industrialised countries. Journal of Applied Management Accounting Research.
9(1). p.21.
Van der Stede, W. A., 2015. Management accounting: Where from, where now, where to?.
Journal of Management Accounting Research. 27(1). pp.171-176.
Lavia López, O. and Hiebl, M.R., 2014. Management accounting in small and medium-sized
enterprises: current knowledge and avenues for further research. Journal of Management
Accounting Research, 27(1), pp.81-119.
Online
BSC Terminology: Perspectives. 2017.[Online]. Available through :<
http://www.balancedscorecard.org/BSC-Basics/About-the-Balanced-Scorecard>.
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