Management Accounting: Systems, Reports, and Cash Budget

This document provides an overview of management accounting systems and their requirements. It discusses the different reports generated by these systems and how they support decision-making in an organization. The document also includes a cash budget for the coming six months and explains its use in financial forecasting. The content is focused on Lets Grow Ltd, a manufacturing company.

Management Accounting

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
LO 1.................................................................................................................................................3
(a) Management accounting system and its requirements:..........................................................3
Various of reports of Management Accounting:.........................................................................5
(b) Evaluation of how Management accounting system and its report support respective
organisation:................................................................................................................................6
LO 3.................................................................................................................................................6
(c) Cash budget for the coming six months ending in August 2020:..........................................6
(d) Use of cash budget and its application for preparing and forecasting the financial position:7
LO 4.................................................................................................................................................9
(e) Discussion about how Lets Grow Ltd can adapt its management accounting system to deal
with financial problems:..............................................................................................................9
(f). Critical evaluation of financial position of Lets Grow Ltd based on the forecasted cash
budget prepared:........................................................................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management accounting term is the combination of accounting reports and managerial reports
used to provide accurate and credible financial information/data to support phase of decision
making. Through managing financial information/details and maintaining earnings, the
administrator decides, records and monitors the financial transactions and events. Additionally,
MA is broader term which actually makes creative strategic decisions through handling
acceptable bookkeeping and financial information (Dauth, Pronobis and Schmid, 2017). This
study is focused on manufacturing company named Lets grow Ltd. The study report comprises
of multiple frameworks/systems and core reports of MA which aid in decision-making phase. In
addition, the use of the cash budget approach for predicting company
operational performance and the use of MA systems to address financial issues/problems.
MAIN BODY
LO 1
(a) Management accounting system and its requirements:
Management accounting can be defined as collection of different elements, conceptual
frameworks, requirements and concepts that assist management in taking effective financial as
well as managerial decisions. They make effective planning with help of these concepts and
provisions relating to use of their funds/resources (Galinova, 2017).
Management Accounting systems are essential in all businesses, as it enables businesses to functi
on effectively by providing financial information on internal functions. The Lets Grow Ltd is
also using the MA system to make right decisions about investments. Additionally, by
implementing management accounting structure that increases productivity, it manages
accounting adequately. Here following is a discussion on the different systems and their specific
requirements in context of Lets Grow Ltd, as follows:
Inventory management system: This system is important for any and all
companies/corporations that are trying to manage and properly track appropriate inventory
records. It's used largely for the tracking of the manufacturing sector facilities
and production of items which have large range of stock items. Lets grow 's manager is
also using this system to identify and classify inventories with the help of classification of
productions and commercial operations. This is used to handle the productivity improvements

from the production to the distribution, material storage, manufacturing to shipment/delivery.
This system substantially requires the wide range of comprehensive details about inventories and
related processes (Grabner, Posch and Wabnegg, 2018).
Price optimization system: Pricing system in booming industry is key factor or variable that
decides about technology that will be employed to determine the price of the produced items.
This relates to use of quantitative method that states how an organization should
implement pricing strategy or policy to optimize profitability. This mechanism usually helps to
make direction in setting prices that will be justifiable to both entity and customers. As in Lets
grow, managing official use this system to evaluate the relation of price changes and demand of
items to determine the most efficient price for different products. This system requires thorough
study of response of customers in relation to a product item and relative of changes in prices of
such product items.
Cost Accounting System: It is also a form of management accounting system/framework, that
used quantify accurate and precise costs of each aspect within an organisation. It entails the
procedure of classifying, collecting, evaluating, identifying, summarizing and allocating
different costs to regulate costs and maintain accountability. In fact, this could be used to
assess actual costs of the product item and services offered by an organisation. This framework,
as in the Lets Grow Ltd, is used to measure costs of its different products as well as processes
related to production of product. Managers also monitor and control costs to ensure a certain
level of profitability. By applying cost accounting framework corporation can put strict control
over the costs which can help company to identity unproductive costs as to enhance operational
performance. A cost accounting system within an organisation require comprehensive and
detailed data/information of costs and expenses as well as proper classification of these
costs/expenses as pet their nature and use within corporation (Horvat and Mojzer, 2019).
Evaluation of Benefits of MA systems:
Systems Benefits
Inventory Management System In Lets Grow such system is advantageous to
minimise the overall stock-handling costs and
minimise normal losses of inventory/stock
(Kostyukova and et. al, 2018).
Cost Accounting System This is beneficial in business, as it facilitates

the identification of efficient and inefficient
operations, guidance for potential growth
strategies and practices, including minimize the
production costs. By implementing this
framework, Lets Grow ltd could collect data on
effective and unproductive business activities
as well as explore all the key reason for
inefficient activities.
Price Optimisation System This system in Lets Grow is beneficial in
determining prices of different kind of product-
items and help to gain competitive advantages
(Nartey, 2018).
Various of reports of Management Accounting:
Management Accounting reports are core documents which act as means for exchanging
information between different organisational units as well as to report final outcomes to top
management. MA reports are important for the internal including external governance,
which involve detailed fiscal information, forecasts that help managers to achieve shorter and
longer-term targets. Different management accounting frameworks or systems help to generate
these reports as they supply all the necessary details for preparation of such reports (Quilty,
Cosentino and Bagby, 2018). Lets grow also using one or more MA reports to support the
decisions of management and other operational tasks, as discussed below:
Budget Report: It is a significant report to evaluate the productivity of business and to set
operational standards as per the organisation's goals and objectives. Each organization thus
develops report of budget to reflect organisation’s efficacy and level of performance as compare
to targeted performance. It is focused on prior past trends to set budget or standard for working
and operating. In Lets Grow managers use this report to assess the present level of operation and
allocate areas where company is not performing efficiently.
Performance report: These kinds of reports are prepared to evaluate the output of a segment
and employees at the end of a specific period. These reports are used by supervisors to consider
when deciding on long-term objectives. By using this report's data company rewards excellent

working employees and good performers, helps the staff to be motivated. There is, thus, a need
to track results and acts of employees in a performance reports that managers prepare. Company
executives in the Lets grow Ltd are using this report for setting rewards and other benefits for
employees/workers to encourage. employee to put their efforts towards organisation's goals
(Robalo and Gago, 2017).
Cost accounting report: The cost of different products or services are defined and determined
under this report. This specifics of all the costs involved in production of a products and costs
incurred to specific organisational processes. This report is mainly linked with cost accounting
system of MA which require delayed costs information. In Lets grow Ltd, this report is used by
managing officials to assess the costs of processes and products as well as to enable managers to
track the areas which are responsible for increasing overall costs.
(b) Evaluation of how Management accounting system and its report support respective
organisation:
Management accounting systems as discussed above and its different reports are interconnected.
Reports offers key data and information to managers and here such information in reports are
obtained through multiple systems of MA. Reports and Systems are integral part of the entire
managerial accounting structure. Aim of reports and systems is to provide extensive support to
managerial as well as operational/organisational tasks. In the relevant company manager, the
stock management method is applied as well as reports are prepared to make products and
services conveniently accessible. With the assistance of such reports and processes, an
administrator collects all relevant information that contributes to making decisions (Schmidt,
2017). The inventory management system allows to determine how much materials are required
for processing and tracking to significantly lessen wasting. This also leads to the efficient usage
of resources. The company could collect the necessary costs details and budget it through cost
reports through obeying cost accounting system. In addition, the price-optimization system is
always coupled with reports, as company can decide which rate the customer must be influenced
by reporting, in long this can provide competitive advantages to company.

LO 3
(c) Cash budget for the coming six months ending in August 2020:
Particular March April May June July August
Balance at bank 20000 20000 49000 47000 13000 -9000
(A) Receipts
Collection from credit sales 30000 156000 168000 124000 144000 162000
Amount received from
customers 96000
Total (A) 146000 176000 217000 171000 157000 153000
(B) Payments
Credit purchase 50000 70000 80000 90000 100000
Loan 20000
Wages 30000 30000 30000 30000 30000 30000
Rent 12000 12000
Depreciation on fixed assets 2000 2000 2000 2000 2000 2000
Variable overhead 10000 15000 18000 12000 14000 16000
Fixed overhead 30000 30000 30000 30000 30000 30000

Suppliers for purchase 50000
Total (b) 134000 127000 170000 166000 166000 178000
Total (a) - (b) 12000 49000 47000 5000 -9000 -25000
Working Note:
Collection from sales:
March- 150000*20%
= 30000
April- 180000*20% + 150000*80%
= 36000+120000
= 156000
May- 120000*20%+180000*80%
= 24000+144000
= 168000
June- 140000*20% + 120000*80%
= 28000+96000
= 124000
July- 160000*20%+140000*80%
= 144000
August- 170000*20%+160000*80%
= 162000
Rent paid:
Total amount- 48000 per annum

Per quarter- 48000/4
= 12000
Depreciation:
Total- 24000 per annum
Per month- 24000/12
= 2000
(d) Use of cash budget and its application for preparing and forecasting the financial position:
Budget: Budgets are structured for an assessment of future profits and costs for benefits of
business. The budget is valuable in creating estimates while considering an organization's goals.
In attempt to produce profits and increase customer numbers, accountant Lets Grow Ltd prepares
numerous types of budgets which assist in the utilization of funds and other financial resources
by setting financial targets. In company managers prepare budgets based on past data and
information while considering short term as well as long term objectives with aim to improve
exiting performance level (Singh and Verma, 2018).
Cash budget: Cash budgets are inflow and outflows of cash forecasts planned for a certain set
period by managers in an organization. It allows credit risk management as well as decides
whether funds for projects are sufficiently available. A cash budget provides estimation of cash
inflows and outflows, act as an accounting instrument for tracking and control of specific short-
term cash flows operations of an entity, a prediction of the expected cash revenues of an
organization, and payments over a period typically of weeks and months. The cash estimate, a
prediction of cash receipts as well as cash payments for year, is all in line with budgets,
and importance of making a financial forecast could not be over-emphasized, because sufficient
cash is necessary if enterprise is to succeed. Staff must also be paying in cash, taxes payable in
cash, including vendors may withhold products until they have been payed promptly. For most
situations a month end cash budget would be appropriate, since payments are usually made
at beginning of each month between lenders and debtors.
Importance of Cash Budget: Most companies in the modern financial world have to create a
cash budget before investment on any expected growth or awareness of new assets is made.
A cash budget dictates the ability of the company to cover its obligations and expenses.

Furthermore, it assists management in decision-taking on its cash reserves for furthering
operations, moreover it assists management in achievement of its goals over a defined period,
and finally, it makes it possible to calculate actual financial activity against the market forecast
(Suljović and Meta, 2017).
Application of cash budget: The cash budgets can be applied by the organization to better
prepare and provide direction and emphasis on business’s sensitive areas. Furthermore, the
corporation and its managerial benefit from cash budgets through proper
allocations and utilization of funds for investments, divestments and current projects that also
generate greater revenues for the Respective company. This means that company employees
receive bonuses and other economic advantages from the corporation's budgetary revenues. It
must be stressed that a business with sufficient budgets will schedule its development and
growth.
Advantages: This budget approach helps us to determine whether cash reserves are sufficient to
meet every day obligations or whether minimum liquidity and cash status requirements stated in
the business or external governance of the business are retained. This also allows a company to
make the decision whether it has so much cash-funds to be spent on financially viable activity or
not.
Disadvantages: Main demerit of this budget is that it consumes more time and a minor error can
lead to adverse financial risks for business. This Budget includes the generation of
budgeted figures, reporting of costs estimates and the forwarding of such information to
management. Such statistics do not change until they have been released. Thus, further
modification in cash budget is not possible generally which make it rigid (Disadvantage of cash
budget. 2019).
LO 4
(e) Discussion about how Lets Grow Ltd can adapt its management accounting system to deal
with financial problems:
Each and every business organisation like Lets Grow ltd face Financial problems at
different stage of operations and at different business segments. Financial problems can lead to
direct impact on organisation’s performance and profitability. Ignorance of financial problems

may lead to financial risks and adverse financial performance. Here following is discussion on
major financial problems that company is facing:
Increasing Inventories costs: In recent period company’s aggregate inventory handing and
storage costs have been substantially increased and continuously going on. This financial
problem affecting company’s operating profits and gross productivity level.
Decreasing sales: There is major decline in company’s sales after making changes in prices of its
different products. This financial problem affecting company’s overall profitability level.
In attempt to respond to these financial problems and recognising key cause of such
problems company can use following techniques of MA, as discussed below:
Benchmarking: It is method of contrasting one's business operations and performance measures
to industry standards. Usually measured aspects are of performance, time, and costs.
In benchmarking process, management recognizes best organizations in their sector, in another
sector where similar mechanisms occur, and compares the outcomes and procedures of those
evaluated (the "benchmarks") to results of one's own. Benchmarking is being used to calculate
performance by means of a particular variable (cost each unit of measurement, efficiency per-
unit of measurement, cycle period of per-unit of measurement or faults per unit of measurement)
leading in performance metric which is then contrasted with others.
KPIs: A performance indicator or also recognized as key-performance indicator (KPI) is kind of
tool used by an agency or corporation to assess performance. This is often used to track an
activity or to evaluate specific components of corporate performance that are most important for
currents and potential success of enterprise. A performance indicator or also recognized as the
key-performance indicator (KPI) is kind of tool used by agency or corporation to assess
performance. This is often used to track an activity or to evaluate specific components of
corporate performance that are most important for currents and potential success of enterprise.
KPIs are being used to evaluate performance of company in its the business segments, divisions,
departments, and workers. This is very useful in demonstrating that certain results/outcomes
have been obtained or hasn't been accomplished, in enabling decision-makers to attain the
intended outputs, results, aims and priorities, in helping to perceive distinctions, enhancements or
innovations that are connected to desired change in particular context as well as in information
showing adjustments like factors or variations.

Financial Governance: This corresponds to way financial information is gathered, handled,
tracked and regulated by a corporation. Financial governance encompasses how companies
monitor business transactions, handle data on efficiency and monitoring, compliance, activities
and reporting. This approach should be used regularly and efficiently to allow the organizations
to make greater long-term results because it can generate sustainable productivity and leaving
behind its competitors in industry. This will help it achieve the long-term objective of optimizing
profit (Weetman, 2019).
Comparison between organizations that how to resolve financial issues:
Basis Letts Grow Ltd Hope constructions ltd
Financial Issues Corporation is facing issue of
increasing stock/inventory
costs. Another issue is decline
in sales after changes in prices
of its products.
This corporation is facing issue of
increasing costs of its construction
projects.
MA system For responding to above 2
issues company adopt
inventory management system
and price optimization system
respectively. As inventory MS
can help company to
minimize inventories costs
and price optimization system
can help to set optimum price
of its products without leading
to decline in sales.
Company should adopt cost
accounting systems to control cost
of its various construction projects
and allocate areas which can lead
to increase in overall project costs.
Technique Company should use
Benchmarking and financial
governance to assess the
reason and identify the main
cause of increase in stock
costs and decline in sales.
Hope construction should adopt
KPIs technique to recognize all the
root factors which are responsible
of increasing project costs (Welsh,
2018).

(f). Critical evaluation of financial position of Lets Grow Ltd based on the forecasted cash
budget prepared:
As per the evaluation of cash budget prepared in above point (c) it has been analysed that
company’s projected net cash flows after April month continuously declined and reached to
negative level in July and August month. This shows that present financial position of company
is quite good but in coming six month it is estimated to adverse due to increasing cash payments
and declining cash revenues. Company should optimise costs and improve the cash collections to
handle this issue.
CONCLUSION
From the above study it has been articulated that management accounting indeed a wider
field which covers a wide range of techniques, concepts, systems and methods which enable
managers to take substantial fiscal, monetary as well as managing decisions. This allow
corporation to boost their performance through placing strict controls over the all the
organisational functions.

REFERENCES
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Online
Disadvantage of cash budget. 2019. [Online]. Available through: <https://bizfluent.com/info-
7762104-disadvantages-cash-budget.html>