Management Accounting: Types, Techniques, and Tools for Financial Planning

This document provides an overview of management accounting, including the types of accounting systems, techniques for preparing financial reports, and tools for financial planning. It discusses the essential need for management accounting systems, the distinction between management accounting and financial accounting, and the benefits of using management accounting systems. The document also explores various accounting techniques used to prepare financial reports and the integration of management accounting systems and reports. Additionally, it covers different tools of planning, such as budgetary control and capital budgeting, and provides insights into the planning tools for forecasting budgets. Overall, this document offers a comprehensive understanding of management accounting and its role in financial planning.

Management Accounting

Contents
INTRODUCTION...........................................................................................................................................3
MAIN BODY..................................................................................................................................................3
Part 1...........................................................................................................................................................3
Types of Management Accounting systems along with essential need. .................................................3
Distinction between management accounting and financial accounting:...............................................4
Types of Management Accounting systems: ...........................................................................................4
Management Accounting reporting:........................................................................................................5
Benefits of MAS:......................................................................................................................................6
Integration of MAS and MA reports.........................................................................................................6
Part 2...........................................................................................................................................................7
Accounting techniques to prepare financial reports................................................................................7
Management Accounting techniques used in order to prepare all the financial reports......................11
Interpretation of data............................................................................................................................11
Part 3.........................................................................................................................................................11
Various tools of planning.......................................................................................................................11
Planning tools for forecasting budgets..................................................................................................12
MAS to solve financial issues. ...............................................................................................................13
Accounting techniques:.........................................................................................................................13
Comparison:..........................................................................................................................................14
To figure out financial problems MA is used..........................................................................................14
Planning tool to figure out financial problems.......................................................................................14
CONCLUSION.............................................................................................................................................15
REFERENCES..............................................................................................................................................16

INTRODUCTION
Accounting is a process which mainly deals with all the financial transactions for which
there are some accounting approaches such as management accounting which focuses on each
and every sort of transactions. It has been said that management accounting refers to the
accounting approaches which is responsible for tracking all the financial as well as non-financial
records. It is said that MA is designed for all the managerial aspects so that they can take
corrective steps associated with monetary as well as non-monetary resource (Amir, Rehman and
Khan, 2020). In the present report, chosen organization is Innocent drinks limited where it is a
client of a business entity AJ and sons which provides consultancy services associated with
accounting. This is the report which is divided into three main sections where first includes
information linked with MA systems & reports. Whereas, in second part information related to
financial techniques along with their implications on specific data. At last, discussion about the
contribution related to planning tools & MA systems are included.
MAIN BODY
Part 1
Types of Management Accounting systems along with essential need.
Management Accounting- It refers to an effective accounting which is mainly targeted in
order to gather as well as assess all the required information which has been occurred during the
financial year. It is the process which is conducted in order to develop internal accounting reports
which plays very essential role in the growth and success of a business entity.
Purpose of Management Accounting- It is said that the main purpose is to acts as one of
the most essential and effective element for the internal stakeholders which assist them in order
to take decisions in a well define manner (Balstad and Berg, 2020). This is the accounting
process which act as framework which enhance the overall performance of the business entity in
an effective manner. In addition to this, it has also been said that this is the process which acts as
a controlling mechanism for business entities which leads towards the improved performance of
the business entity.

Distinction between management accounting and financial accounting:
Base for
comparison
MA Financial accounting
Users This is the accounting process
which is designed for all the
internal stakeholders.
This method is used by internal as well as
external stakeholders both.
Regulations I order to prepare this sort of
accounting no rules as well as
regulations are going to be used.
This sort of the accounting system which
contains different type of regulations
needs to be considered by the accountant
while preparing the report.
Type of
company
It is the type of accounting which
can be implemented in any kind of
a business entity (Bhimani, 2020).
Whereas this the accounting system
which requires special organizations
which are usually listed in stock
exchange.
Types of Management Accounting systems:
Management accounting is one of the most effective accounting system which are almost
linked with each segment of a business entity. This as a result creates ample number of
management accounting systems going to be explained in the present report as follows: Cost accounting system- This is the accounting system which is developed with a
procedure of tracking as well as controlling all the expenses which might arise in the
business entity within a accounting cycle. This is the system where each and every item
cost is recorded as well as compared with the standardized cost which will make it easier
to identify the efficiency & progress of various tasks in context of their expenses. In the
present context of Innocent drinks limited, the finance managers of the company can gain
key information with the help of this accounting system related to cost of various
activities as well as the variance (Căpușneanu and et. al., 2020).
Essential requirement- The requirement of the accounting system is to effectively control all the
unwanted expenses which as a result increases the revenues of the business entity. In reference to

the Innocent drinks limited, this is the accounting system which help in reducing the additional
expense as well as cost of all the unwanted activities. Inventory management system- This is the type of accounting system which usually
associated with managing all kind of stocks of a business entity. This can effectively be
done with the help of recording each and every stocks on a daily basis which consist of
consumption of all the raw material, semi finished stock, prepared stock and so on. Along
with this, it is the system where stock are being used by the managers by considering all
LIFO, FIFO method. In the present chosen company, it has been said that the managers
adopt inventory management system with the aim of better consumption of all the
available raw materials (Endenich and Trapp, 2020).
Essential requirement- This is the sort of accounting system which is quite necessary for the
business entities in order to effectively use all the available stock in an effective manner. In
reference to the Innocent drinks limited, it has been said that this is one of the most important
element which assist in order to manage all the raw material in an effective manner so that they
will be able to gain positive results according to their requirements. Job costing system- Another type of accounting system is job costing system which
mainly focuses in order to track cost of the job as well as task aligned in the process of
completing the whole operation in an effective manner. It is said that the main aim of
present accounting is that they must measure cost of every unit in order to take further
decisions in an effective manner. In relation to the Innocent drinks limited, it has been
said that this is the type of accounting system which is used to identify the objectives of
task assigned which includes specific amount of cost.
Essential requirement- It is very essential for the manages to adopt this accounting which aid in
identifying the number of job and task allocated in order to finish the whole activity and measure
the cost of each and every unit. The finance manager of Innocent drinks limited adopt this
accounting system as they are having large product portfolios (Fleischman and McLean, 2020).
Management Accounting reporting:
Management Accounting define as the procedure of preparing different sort of formal
written document which consist of all the information related to various segments of business

entity. It has been identified that these are the reports which are adopted by administration of the
business entities so that they can effectively take best steps in order to take decisions. These
reports are as follows: Inventory management report- This kind of document consist of all the information
associated with every kind of inventories in an effective as well as systematic manner.
Under this report, all the information related to the quantity of all the raw material,
additional materials, required material and many more. All these information are used by
managers in order to take better decisions (Frick, Birt and Waters, 2020). In relation to
Innocent drinks limited, managers of the company develop this report along with the aim
of getting required information related to the stored materials.
 Performance report- This is the another report format which includes all the data related
to the performance of all the individual and the financial position of the company. As per
this report, all the information related to loss, profit, return, cash availability and many
more. In this report, finance manager of the Innocent drinks limited opt this method
according to the requirement.
Benefits of MAS:
MAS Benefit
Cost
accounting
system
This is the accounting system which is quite beneficial for the business
entities in order to address the areas where companies expenses are quite high.
Inventory
management
system
It is one of the useful system which assist a business entity in order to
examine the best and optimum utilization of all the available stock. Finance
manager of Innocent drinks limited get benefit with this accounting system
with the help of getting all the available information associated with daily
consumption.
Integration of MAS and MA reports.
There are different sort of MAS as well as MA reports which assist a business entity in
order to gain success in an effective manner (Golyagina and Valuckas, 2020). In the above
report, different types of accounting systems are used which assist the finance department of the

selected company. In addition to this, Management Accounting is a reports which is mainly
associated with inventory report which is linked to the production department. This is the
integration which usually contributes in order to guide the managers so that they will be able to
take best decisions in order to remain sustainable at the marketplace.
Part 2
Accounting techniques to prepare financial reports.
Marginal costing- This is a technique used in finance which is linked with developing
income statement by effectively considering all the variable expenses as their main cost as well
as fixed expenses as the periodical cost (Johnstone, 2020). It has been said that marginal cost
refers to the change in their total cost which is usually arise when the quantity which is produce
in increased by one unit.
Absorption costing- This is the another financial technique associated with developing
the income statement in which both variable as well as fixed expenses are considered as the
main cost.

Management Accounting techniques used in order to prepare all the financial reports.
It has been analyzed that there are different types of accounting techniques adopted by
the accountants of a business entity in order to develop all the financial reports in an effective
manner. These are the techniques which are acts as the framework to their users in order to
follow well defined and systematic process so that they will be able to get desirable results
(Łada, Kozarkiewicz and Haslam, 2020). In the above section, two different techniques are going
to be used by the finance managers in order to create an income statement which are marginal as
well as absorption cost methods. Both these techniques are highly used by the business entities in
order to develop different results which are beneficial for the business entities.
Interpretation of data.
It has been said that in the above stated part two income statements has been developed
which are going to be interpreted in a detail manner as follows:
With the assistance of above prepared income statement which is developed under
marginal costing, it has been identified that this there is a net profit identified in both the months
which are April (£13000) as well as May (£22000). In addition to this, it has also been said that
there is a variation in net profit due to high sales identify in May month. Apart from this,
according to the absorption costing the whole net profit is examined £19000 & £25000 for the
same duration. In addition to this, it has also been said that the main reason behind the difference
arise in the total net profit in these techniques is the way they take their fixed as well as variable
cost in the overall procedure of preparing the income statement.
Part 3
Various tools of planning
Budgetary control : The purpose of performing this technique is to prepare various
budgets for future by comparing actual performance with estimated values (Le and et. al.,
2020). In order to maintain all financial performance of organization, this technique will
help out because it is directly connected with all forms of business entities and helps in
finding different types of variances. In context of limited innocent drinks, leading planning
tool can be implemented.

1. Capital budgeting; It can be interpreted as a kind of budgeting approach, used to
measure power of projected financial plans. This assessment of efficiency of projects is
carried out by various methods called as payback time period, net present value etc. the
aim of doing this budgeting is to guide managers to proceeds right steps to invest heavily
in any project in above limited innocent drinks,it can commendation to finance managers
to assess a wide variety of alternatives (Lepistö and et. al., 2020).
Advantage- This approach is in favor of companies. It helps to protect themselves from future
financial risk because it suggest manager to select best option among various alternatives. In
addition to it is helpful for companies to support competent control over expense deals with
investments.
Disadvantages- This technique is applicable only for large companies & big projects not for
small organization and small tasks. It measures efficiency of project which is totally based on
assumption and sometime it will leads to loss of company.
2. Cash budget- This is a form of budget which bears info related to those action which are
straight to cash outwards and cash inwards with in a particular accounting period of time.
In context of above company, this budget can be used to manage cash outflow and cash
inflows.
Advantages-According to budgeted activities, companies can assign their cash by using this
technique.
Disadvantage- Companies performance is affected by the external factors and due to this cash
budget not provides accurate prevision of cash payments and cash receipts. They are not able to
use their cash because of predetermined plan (Napitupulu, 2020).
Planning tools for forecasting budgets
It is useful for manger to prepare budgets. It is possible only when planning tool like cash
budget , capital budget provides info related to estimation of financial values and Innocent drinks
limited company uses three mentioned budgets and each contributes to their controller and
director to calculate financial values.

MAS to solve financial issues.
It is said that there are ample number of financial issues and problem faced by large
number of companies as there is lack of effective management. In addition to this, it has also
been said that this is very difficult to identify any institution who don't have any financial issues.
Some of these issues are going to be discussed as follows:
Inconsistency in the overall sales- This issue is associated with the fluctuation of sales
revenue which usually arise due to internal weakness as well as high competition. It is said that
the financial issue decline the success graph of the business entity. In case of Innocent drinks
limited, it is said that this is the issues faced by them because of there ineffective strategies of
pricing (Pedroso and Gomes, 2020).
Unwanted higher expenses- This sort of the financial issue faced by business entities
who usually fail to manage their expenses. This can be arise in the companies because of various
possible reasons like unskilled staff members, lack of knowledge, ineffective budgeting and
many more. In the present organization, Innocent drinks limited face this issue which highly
affect their overall sales.
Accounting techniques:
Bench marking- It is known as an effective approach which is used by finance
department of the company in order to make comparison between the current as well as actual
performance of the business entity. This sort of comparison is usually arise at workplace in order
to understand the gap which as a result help in adopting effective methods to get the benefits as
per the requirement. Bench marking is quite effective and beneficial for the finance department
in order to address the area which is weak and require additional efforts.
Key performance indicator- This is the kind of accounting approach where both financial
as well as non-financial aspects are going to be measured by the companies in an effective
manner. In terms of financial aspects, all the information related to the profit, loss, expenses, as
well as returns are going to be included (Taschner and Charifzadeh, 2020). Whereas, in
reference to non-financial aspects all the information associated with the turnover, working
condition, political condition are involved. This will assist in assessing the main cause of all the
financial issues arise at the workplace.

Comparison:
Base for
comparison
Innocent drinks limited George’s drinks limited
Financial
issue
This is a business entity which is
facing issues related to the sales in
their last accounting cycle which is
quite low. This as a result act as
declining in all the aspects of the
business entity (Ugalde Vásquezand
Naranjo-Gil, 2020).
In context of this company, they are
facing a problem related to the higher
cost of all the operations. This as a
result decreases the sales of the
company and lower down the net
margin of the business.
Technique
to recognize
issue
Finance managers of the company
use bench marking approach so that
they can compare their financial
performance in an effective manner.
Higher authorities of the company use
KPI approach so that they can identify
the financial issues face by them. This
is usually done by focusing on
financial characteristic accompanying
to revenues, expenditure etc.
To figure out financial problems MA is used
Various methods of accounting systems is combined with company's process and
operations. It helps to company in resolving financial problems in a proper manner. For example
in upper section two different financial problems have been resolved by using cost accounting
and price optimization systems. This displays the contribution of MAS is wide for handling
number of issues.
Planning tool to figure out financial problems.
It provides detailed info to director related to estimated income and expenses. To resolve
financial problems, this info can be utilized by management (Amir, Rehman and Khan, 2020).
For instance, above mentioned company shows various planning tool like capital budgeting ,
cash budget etc. and these plans helps in dealing with financial barriers.

CONCLUSION
With the aid of above stated information, it has been said that management accounting is
one of the most effective method which help a business entity in order to maintain their business
operations for a longer period of time. By conducting part one it has been concluded that both
MA as well as MAS are the most crucial element for the success of a business entity, whereas
with the help of second part it can easily be understood that distinct financial techniques are the
key factors behind growth and development of a business entity. At the end of this report, by
doing the whole investigation it can easily be examine that there are various sort of financial
issues which can be solved by the managers under MAS.

REFERENCES
Books and journal:
Amir, M., Rehman, S.A. and Khan, M.I., 2020. Mediating role of environmental management
accounting and control system between top management commitment and environmental
performance: A legitimacy theory. Journal of Management and Research, 7(1), pp.132-
160.
Balstad, M.T. and Berg, T., 2020. A long-term bibliometric analysis of journals influencing
management accounting and control research. Journal of Management Control, 30(4),
pp.357-380.
Bhimani, A., 2020. Digital data and management accounting: why we need to rethink research
methods. Journal of Management Control, pp.1-15.
Căpușneanu, S., and et. al., 2020. Management Accounting in the Digital Economy: Evolution
and Perspectives. In Improving business performance through innovation in the digital
economy (pp. 156-176). IGI Global.
Endenich, C. and Trapp, R., 2020. Ethical implications of management accounting and control:
A systematic review of the contributions from the Journal of Business Ethics. Journal of
Business Ethics, 163(2), pp.309-328.
Fleischman, R. and McLean, T., 2020. Management accounting: theory and practice. Routledge.
Frick, H., Birt, J. and Waters, J., 2020. Enhancing student engagement in large management
accounting lectures. Accounting & Finance, 60(1), pp.271-298.
Golyagina, A. and Valuckas, D., 2020. Boundary-work in management accounting: The case of
hybrid professionalism. The British Accounting Review, 52(2), p.100841.
Johnstone, L., 2020. A systematic analysis of environmental management systems in SMEs:
Possible research directions from a management accounting and control stance. Journal
of Cleaner Production, 244, p.118802.
Łada, M., Kozarkiewicz, A. and Haslam, J., 2020. Contending institutional logics, illegitimacy
risk and management accounting. Accounting, Auditing & Accountability Journal.
Le, T., and et. al., 2020. Factors affecting the application of management accounting in
Vietnamese enterprises. Uncertain Supply Chain Management, 8(2), pp.403-422.
Lepistö, S., and et. al., 2020. Controlling outsourced management accounting to build legitimacy.
Qualitative Research in Accounting & Management.
Napitupulu, I.H., 2020. Internal Control, Manager’s Competency, Management Accounting
Information Systems and Good Corporate Governance: Evidence from Rural Banks in
Indonesia. Global Business Review, p.0972150920919845.

Pedroso, E. and Gomes, C.F., 2020. The effectiveness of management accounting systems in
SMEs: a multidimensional measurement approach. Journal of Applied Accounting
Research.
Taschner, A. and Charifzadeh, M., 2020. Management accounting in supply chains–what we
know and what we teach. Journal of Accounting & Organizational Change.
Ugalde Vásquez, A.F. and Naranjo-Gil, D., 2020. Management Accounting Systems, Top
Management Teams, and Sustainable Knowledge Acquisition: Effects on Performance.
Sustainability, 12(5), p.2132.