Essential Requirements and Benefits of Management Accounting System

This report discusses the essential requirements and benefits of using a management accounting system. It explores different types of reports used in management accounting and their role in decision making. The report also covers the preparation and application of cash budgets in forecasting financial position. Additionally, it discusses the adaptation of management accounting system to deal with financial problems.

MANAGEMENT
ACCOUNTING

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Essential requirements and benefits of management accounting system....................................3
Management accounting system and its report helping in taking decision.................................4
Cash budgets for coming time frame..........................................................................................5
Use of cash budget and its application in forecasting financial position....................................6
Adaption to management accounting system in order to deal with the financial problems.......7
Critical evaluation of financial position based on the forecasted cash budget...........................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Management accounting is the branch of accounting which assists the company in taking
decision relating to the management of the company. It is very essential for the company to have
effective use of the management accounting as this help the company in taking the decision in
effective and efficient manner (Hall, 2016). The present report will discuss the issues which are
being faced by the company in effective managing and taking decision. The current report will
discuss about the requirements and benefits of using management accounting system along with
the variety of different reports used in management accounting. Further the cash budget will be
prepared and then the uses of it and application of cash budget in forecasting will be discussed.
Also, the use of management accounting system to deal with the financial problem will be
discussed in the end of the report.
MAIN BODY
Essential requirements and benefits of management accounting system
The management accounting is that branch of the accounting which uses the financial
data and information and advice the company in growing and developing the business to a great
extent. This management accounting is a process of analysing the cost of the business and to
make a report for analysing all the expenses and ways of reducing the expenses. On the other
side the management accounting system is an internal system which the company uses in order
to evaluate and measure the performance of the company and take decision relating to the growth
and development of the company (Järvenpää and Länsiluoto, 2016). Hence for getting success
and taking effective decision it is essential for Lets Grow to fulfil all the requirements of good
management accounting system which are as follows-
The major requirement is that all the data must be reliable and valid as if the data will not
be latest then the company will not be able to take the decision in proper and effective manner.
This is because the data is the base for all the decision which is being taken.
The other important requirement of management accounting system is accuracy and
timely decision. This is majorly because of the reason that if the decisions are not taken on time
and in accurate manner then they is just waste of time (Honggowati and et.al., 2017).
The different examples of management accounting system being used by Lets Grow are
as follows-

Job costing- under this method the cost is calculated on the basis of the particular job
which are assigned within a particular business process (Collis and Hussey, 2017). This system
of management accounting is used by Lets Grow as the company need to allocate the cost to the
entire specific job which are incurred for the completion of business.
Price optimisation- this is another costing system which is being used by Lets grow uses
in order to mathematically analyse and determine the different price level for the product and
services which the company is dealing with help of different channels. This method helps Lets
Grow to fix a price for the goods and services while taking into consideration all the different
objectives of the company.
Inventory management system- this is also an important management accounting system
which is being used in by Lets Grow in order to manage the flow of the inventory within the
company. This is very essential as if the inventory or the stock will not be managed on time then
the company will not be able to manage its sales.
The major benefit of using all thee management accounting system is that these are more
reliable and accurate and it is helpful for the company in taking effective decision. This is
majorly due to the fact that this assists the company in calculating the cost in different manner
and this assist the company in calculating the cost in effective and efficient manner.
Management accounting system and its report helping in taking decision
In addition to the use of the management accounting system some management
accounting reports are also prepared by the company. These management accounting reports are
the one which is prepared by the company in order to record all the different transaction of the
company in the chronological order and this will assist the company in taking the decision in
effective manner. Hence, there are different types of reports which are being prepared by Lets
Grow in order to manage the working and operations of the company. The major reason for
using the management reports is that this will assist the company in managing and recording all
the details and then this will be helpful in future in case of taking any of the decision. These
reports are as follows which are used by Lets Grow-
Inventory control report- this is a type of report which is being used by Lets Grow and
this will assist the company in managing all the stocks within the company (Chiwamit, Modell
and Scapens, 2017). This is essential to get all the inventory transaction recorded as this will help
the company in managing the entire inventory coming and going out of the company. Thus, this

will assist the company in taking decision relating to the inventory and its proper and optimal
management.
Break even analysis report- this is also an important type of report which is majorly made
by the company in order to analyse the point of sales wherein there will be no profit and no loss
situation (Abernethy and Wallis, 2019). This is majorly because of the reason that it is very
essential for the company to analyses that which level of sales will be more optimal for the
company. Hence, this report will help the company in making the fact clear that how much sales
the company need to make to at least meet the cost incurred.
Master budget- this is another type of report which is being made by the company Lets
Grow and this will assist the company in making an aggregation of all the different types of
lower level of budgets. This is an expensive business strategy which is helpful in expecting the
future sales, production level and all the income and expenses very fast and accurately. The
master budget can be treated as the sum total of the all the different budget which are made for
all the functional division within the company such as sales, production ,revenue, expenses and
many others.
Cash budgets for coming time frame
The cash budget is the one which help the company in making estimation for the future
cash inflow and the cash outflow from the particular business activities. The cash inflow is
referred to as the income which is earned either due to the sales or any other different activities.
On the other side the cash outflow is defined as the amount of the money which is being paid by
the company to the outsider or the expenses which the company is paying. It is very essential for
the company to have an estimation relating to all the possible cash inflows and outflows and how
to manage if there is cash deficit. Thus, this prior estimation will help the company in managing
the cash and its flow in proper and effective manner. The estimated cash flow of Lets Grow on
the basis of the information provided for the next six months is discussed in the following-
Particulars March April May June July August
Sales (received in
same month) 30000 36000 24000 28000 32000 34000
Sales (received in
following month) 96000 120000 144000 96000 112000 128000
Total sales 126000 156000 168000 124000 144000 162000
Less: expenses

Purchases 50000 50000 70000 80000 90000 100000
wages 30000 30000 30000 30000 30000 30000
Rent (paid quarterly) 12000 12000
Depreciation 2000 2000 2000 2000 2000 2000
Variable overheads 10000 15000 18000 12000 14000 16000
Fixed overhead 30000 30000 30000 30000 30000 30000
Total expenses 134000 127000 150000 166000 166000 178000
Cash surplus / deficit -8000 29000 18000 -42000 -22000 -16000
Opening cash balance 20000 12000 41000 59000 17000 -5000
Closing cash balance 12000 41000 59000 17000 -5000 -21000
From the above estimated cash flow it is clear that in the month of July and August there
is deficit of cash and it will be negative that is the company will be having low cash availability
as the expenses are more and the income is less. Thus, this will help the company to analyse
different options in order to manage and monitor the flow of the company and the cash usage
within the company so that in actual the cash deficit can be converted within the cash surplus ar
at least can attain the breakeven point.
Use of cash budget and its application in forecasting financial position
With the help of the cash budget the company is able to know that what will be the cash
surplus and what will be the cash deficit. If there is cash surplus then this will be advantageous
for the company and if there is deficit then this will not be advantageous and will be losing
situation of the company. Form the above estimated cash flow it is clear that in the starting four
months there is cash surplus but in the next two months it is estimated that there will be cash
deficit. Thus, this estimation will give an idea to Lets Grow that how they have to manage their
working so that they do not face the cash deficit in the upcoming months.
Hence, at time of the cash surplus it is the duty of the company that they do not misuse
the money and make its optimum utilisation. This is necessary because of the reason that the
future is uncertain and the company not knows what will happen next. Thus, if they will be
having the surplus money currently then they can save the money and use it later in case of any
emergency or in case of the deficit. Also, another major thing which Lets Grow can do with help
of the cash surplus is to invest in short term investment so that the money can be increased
within the shorter period of time (Schaltegger and Burritt, 2017). Also, the company can invest
the surplus money in the latest technology as this will increase the proficiency of the company to
a great extent.

But in case if there is cash deficit then this is not a good position for the company as this
damages the image and goodwill of the company within the highly competitive market this is
particularly because of the fact that the cash deficit is a situation in which the company is not
having enough money and they will not be able to manage their daily operations as well
(Dearman, Lechner and Shanklin, 2018). Hence, for this it is very essential for company that
they mange the situation of deficit in proper and effective manner. This is majorly because of the
reason that if the deficit will not be managed in proper manner then the company will face losses.
Thus, for managing the cash deficit the first and foremost stage is to manage the cash in
time of surplus so that this money can be used in time of deficit. Thus, for this there is
requirement of proper management of cash that is as and when there is case of deficit the extra
money can be utilised so that the operations in the case of crisis can be managed in effective and
efficient manner. Another major way of dealing with the cash deficit is to take short term loans
which can be taken and as the deficit is recovered the loan is paid back. Thus, this will not
hamper the working of the company which could have in case of raising share capital and for
going for debenture.
Adaption to management accounting system in order to deal with the financial problems
The business exist in the environment which is very dynamic and ever changing and
because of this it is very essential for the company to adapt to all the latest changes taking place
in the environment. Hence, for this it is essential for the company that they try to solve the
problem in effective and efficient manner. This is necessary because of the reason that the when
the company faces some or the financial problem then the company has to face many different
financial issues this may be like changes in the revenue pattern, low sales and many other
different types of financial problems.
Thus, for this there are many different management accounting practices and strategies
which Lets Grow can use in order to manage the problem in effective and efficient manner such
that the company does not have any impact over its productivity and profitability with the use of
the financial problem. The major practice which will help the company in managing the financial
problem is the use of balanced scorecard (Hiebl and Richter, 2018). The balanced scorecard is a
strategic tool which is very much helpful for the planning and managing of the company and its
operation in such a way that the whole company is developing in a balanced manner. This
strategy focus that the company must not focus on a particular part of the company and rather

must ensure that all the different department and activities of the business are undertaken at time
of making the growth and developmental plan of the company (Alawattage, Wickramasinghe
and Uddin, 2017).
The balanced scorecard helps the company in dealing with a variety of financial problem
because of the reason that this method includes the financial issues as one of the perspective of
the technique. This technique particularly contains four different types of perspective which need
to be studied and analysed at time of thinking of developing and growing the business to a great
extent. Thus, for this the four perspective of balanced scorecard is internal process, learning and
growth, financial aspect and consumer. These are the four different aspects which are included in
the management of the company as a whole. This is because of the fact that all these four aspect
complete the growth and development of the overall company.
In case of the financial problem like the sales of the company are decreasing then the
aspect of balanced scorecard that is consumer need to be focused. This is majorly because of the
reason that the consumer are becoming less and this need to be focused by the company so that
they can be attracted towards the use of the different techniques of attracting the consumers to a
great extent. In the same manner if the problem is among the employees then the company can
make the use of the internal process of the balanced scorecard and try to make and improve the
internal process and system under which the employees of the company work. Thus, this
working on the improvement of the internal process will make sure that employees working
within the company are satisfied and happy working in the company.
Critical evaluation of financial position based on the forecasted cash budget
In this highly competitive world there are many different issues which are being faced by
the company and which need to be mitigated in order to operate in the intense competitive
market. Thus, for this it is essential for Lets Grow Company to critically evaluate its financial
position in order to mitigate with the financial position of the company. Hence, for this it is
essential for the company to have a strict eye over the all the financial statements that is profit
and loss, balance sheet and cash flow statements (Adler, 2018). This is important because of the
reason that this analysis and overlook over the financial statement will help the company in
analysing the fact that which are the areas which requires a lot more improvement and which are
the areas where the company is good. Also, in the areas where in the company is good will have

to make strategies for retaining that position within the company and the highly competitive
market.
Thus, for this the company need to critically evaluate all the financial statement and
position of the company so that they can asses that where the company is lacking and in which
areas the company is requiring improvement (Van der Stede, 2017). The critical evaluation of the
company and its financial position is very essential for the success of the company. This is
majorly pertaining to the fact that when the company analyses the financial position of the
company then the company can evaluate that what all necessary steps they need to take in order
to manage and improve the working efficiency of the company.
CONCLUSION
From the above discussion it is clear that the management accounting is vey essential for
the company to make effective use of the management accounting principles and techniques and
strategies. The present report mainly focused over the different types of management accounting
requirement like the reliability, accuracy, timeliness and many others. Also, the discussion brings
out different types of management accounting system used by company like inventory
management, price optimisation and many others.
Also the different report used by the company was highlighted like the master budget,
break even analysis report and many other reports. Further the use of the cash flow budget for the
estimation of next six months was made. Further the use of surplus cash and the steps to be taken
in case of cash deficit was discussed like the taking of short term loan, using surplus money in
case of the deficit and many others. In the end the use of the balanced scorecard for dealing with
the problems like decrease in sales, employees performance and many other was discussed.

REFERENCES
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accounting innovations: The case of economic value added in Thai state-owned
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Collis, J. and Hussey, R., 2017. Cost and management accounting. Macmillan International
Higher Education.
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