Management Accounting: Systems, Reports, and Decision Making

This report discusses the management accounting system and its requirements, various methods for accounting management reports, and how these reports support decision making. It also includes a cash budget for six months.

Management Accounting

Contents
INTRODUCTION.......................................................................................................................................4
LO 1............................................................................................................................................................4
(a) Management accounting system and its requirements........................................................................4
Various methods for accounting management reports.............................................................................5
(b) Management accounting system and its report support in making decision.......................................6
LO 3............................................................................................................................................................7
(C) Cash Budget of six months................................................................................................................7
(d) Use of cash budget and its application for preparing and forecasting the financial position..............7
LO 4............................................................................................................................................................9
(e) Management accounting system deal with financial problem............................................................9
(F) Critical evaluation of the financial position based on forecasted cash budget..................................10
CONCLUSION.........................................................................................................................................10
REFERENCES..........................................................................................................................................12

INTRODUCTION
Management accounting is the mixture of financial statements and records that are used
to include sufficient and reliable financial details for money making. The company's director
determines, gathers and documents the financial activity by handling the financial details and
holding income. Additionally, management accountability is the broader term that actually
makes innovative business decisions by handling appropriate accounting and details (Suljović,
Eand Meta, 2017). This report is based on the Lets grow Ltd which is a manufacturing company.
This report consists of various systems and reports that helps in decision making procedure.
Moreover, cash budget use for forecast business activities and use management accounting
systems to sort out financial problems.
LO 1
(a) Management accounting system and its requirements
According to the Chartered Institute of Management Accountants (CIMA),
Management Accounting is “The method of defining, evaluating, collecting, reviewing,
planning, presenting and gathering knowledge that organizations implement to prepare, analyze
and monitor within an organization and to ensure that its good resources utilized and
accountable. Accounting management also includes preparing financial reports for non -
managerial communities, including such investors, borrowers, government regulators and
financial regulators”.
The Institute of Certified Management Accountants(ICMA), states, A management
accountant needs to apply their professional skills and knowledge in the preparation of financial
statement and other judgment-oriented organization in such a way as to workplace that helps in
policy development and the coordination and forecasting of the enterprise operational activities.
Difference between Management accounting and financial accounting:
Basis Management accounting Financial accounting
Information mainly produced These information use for There are using information

for internal use like managers and
employees
foe external users like lenders,
banks, shareholders
Requirements It is not required to prepare on
mandatory basis because it is
optional
These reports are prepared on
the mandatory basis.
Data For this accounting take future
data.
There are taken historical data
for the accounting.
(a)
Essential requirement of MA and benefits of MA
There are identified some requirement of management accounting in the business such as:
Management style: The MA require to apply effective management style as per the structure of
the business like autocratic in which all the decision taken by the management and in democratic
participate to other team member and take right decision for the business development.
Organizational structure: The MA helps to follow a particular structure that helps to reduce
communication barrier and upper level easily contact to lower level and middle level employees.
For this they are selecting flat and functional structure.
Information: The main requirement of the MA that it provide accurate and reliable information
on time. So accordingly management takes right decision in regard the business and plan for the
longer sustainability.
As per the requirements of the MA it is getting that these MA beneficial for the LETs
grow such as:
 With the help of MA Company take right decision on time and present all the information
in front of upper executives without any problem.
 It beneficial in forecasting for different things that supports in further investments.
 Different systems and reports of MA helps to effectively run of organizational procedure
in smoothly manner

Management information system in all companies is important as it allows companies to
operate efficiently by giving financial details on domestic operations. In order to address the
program administrator, detailed data on defined procedures is required in order to track the
expense and make responsible decisions. The Lets Grow Ltd uses the accounts management
system to make the right investment choices. In addition, it handles accounting efficiently by
adopting management accounting framework that improves competitiveness. The basic
specifications of the financial processing system are addressed below-
Inventory management system: This system is quite relevant for all organizations
which are used to maintain proper stock documents and control them appropriately. It is
primarily used for monitoring the services and products in the industrial sector and for the
production chain. Lets grow Ltd's manager has used this system to identify inventory with the
aid of engaging the production chain or business activities. From manufacturing to
manufacturing, material handling, processing to delivery, it was used to cover the increased
profitability.
Essential requirement: The requirement of this system to collect all the information in regard of
management of inventory and track with the help of software.
Benefits: This system is beneficial in achieving operational departments operational efficiency
which delivers maximum results by cutting costs and optimizing revenues and profits. For
example, by implementing this method, Lets grow benefits from achieving the targets and targets
by stock management. Furthermore, by implementing this method, it allows to optimize the
whole market (Nartey, 2018).
Price optimization system: In growing industry, pricing structure is the key factor that
decides which technology will be used to decide the cost of the goods and facilities. In order to
maximize productivity, it was the use of quantitative research that specifies how an company can
follow the pricing structure. In fact, this method helps include direction in setting the rates that
will be acceptable to both business and consumers. Such as Let's Grow Ltd using this system and
build measurement rates since paying wages that attract young customers and boost the
profitability by attempting to set nonviolent operation rates.

Essential requirement: This report requires setting effective price structure of business and
accordingly selling out in the market to attract customers.
Benefits: This method has various advantages because it supports to keep the consumer by better
market efficiency, to establish fair market prices and to recognize the threat in a corporation.
Like L&B haulage, this system has been used to help analyze the pattern of purchases and give
priority for price levels.
Cost accounting system: It is a management accounting method used to measure reliable
and correct costs across the organization's entire population. It involves process to register,
evaluate, identify, summarize and distribute costs to monitor unnecessary costs. Furthermore,
this will be used to learn the real expense of the numerous services and goods. Like Lets Grow
Ltd, this method has been used to measure the cost of each product activity and also to determine
whether the entire venture is successful or not. Through implementing the cost accounting
method company will protect the expense of its business operations and sustain a sustainable
organization (Robalo and Gago, 2017).
Essential requirement: The requirement of this system to set cost of every product in order to
achieve growth and success in business and predict future activities.
Benefits: This is useful in any company as it allows identify productive and anti-profitable
operations, guidelines for future growth practices and standards, and regulates products and
materials distribution. Lets Grow Ltd can gather data regarding successful and uncompetitive
business transactions by applying this structure and can discover out all the precise purpose for
unsustainable operations. Therefore, to recognize the potential growth and income, it applies this
method.
Process costing system: When a huge number of control components are manufactured a
standard cost system absorbs expenses. A fundamental constant of processes absorbs costs and
allocates them at the end of the financial period. The procedure is at a very simpler stage: direct
expenses.
Job order costing system: Costing job orders or costing work is a method for awarding and
collecting production costs to a particular output node. The costing system for job orders is used

when the specific products manufactured are significantly different from one another and each
one has a considerable cost.
Various methods for accounting management reports
Accounting management documents are valuable for internally and externally
governance, and includes comprehensive financial information, reports and documents for
strategic taking to meet shorter and lengthy-term aims. In many other sentences, the management
accounting approach helps make company budgets prepared, supervised, and managed. Such as
Lets grow industry director conducts cash management documents with the aid of financial
details and cash management. Eventually the accounting system of management, the foregoing is
addressed:
Budget report: It is a vital document was using to assess the efficiency of the company
and produce income for micro, medium to large businesses. Hence, every organization develops
an expenditure to consider the customer requirements and arrangement that actually generates
income. It is planned based on previous experience and knowledge that allows generating
revenue and spending. Lets grow Ltd develop expenditure reports that guide managers to provide
better protections for employees and accurately predict revenues and expenditures (Kostyukova
and et. al, 2018).
Performance report: Such reports are produced to assess a sector's and workers' output
at the end point. Such documents are used by the supervisors to make major business decisions
about long term goals. Organization has rewarded good performers for their great work which
allows inspire the workers, and they are making further attempts. Performance reports are
therefore important which managers plan by documenting work performance and actions.
Business executives in Lets grow Ltd would use this study to make them feel better by rewards
and other advantages. As a practice, they operate more efficiently by adopting laws and
regulations.
Cost accounting report: It is used to describe the prices of the produced products or
services. A cost analysis contains details on all costs incurred, and distinguishes the volumes of
produced goods. These documents advise Lets Grow Ltd executives to handle managerial
accounting documents to understand the cost rates for each venture. Profitability are measured

and reported as if after giving a clear image of all costs through these studies. Therefore, by
balancing all assets across various agencies, it helps to reduce material loss, work hour expense
and payroll expense.
Inventory and manufacturing Report: Companies that make visual commodities,
particularly those with a reduced high availability in production, find such reviews very useful.
They authentic situations information on the expense of inventories, labor costs as well as other
structures of administrative costs associated with producing, supplying original data for
optimizing installation or machine tools.
Job cost report: Work expense reports give a side-by - side overview of the estimated
cost of a single project relative to the program's overall earnings. This study allows management
assesses the sales and profits of particular job kinds and improve their performance by
concentrating on the programs usually the most financially viable all in all.
(b) Management accounting system and its report support in making decision
The management accounting system and reporting are interconnected, as reports are
ready with both the assistance of the bookkeeping processing system. This comes from financial
management system that ensures which operation is successful or which one is not. L&B haulage
director implements the stock control method and prepares reports that make goods and services
available efficiently. With the help of these reports and systems a manager collects all the
important information that helps in decision making procedure. The inventory system helps to
know how much material require for the further order and report supports to reduce wastages. It
also helps in proper utilization of resources in effective manner. By following the cost
accounting system director, the company may collect cost information that is required and plan it
by costs reports. In fact, price management program is often combined with reporting, as
company may determine what rates have to be placed to impress the buyer through reporting.
Information is therefore an official document which advises that system must be used to keep the
prices (Al-Mawali and et. al, 2018). So through these systems and report Lets Grow Ltd take
effective decision in regard of business investments.
Planning: These reports are helping to prepare planning in regard of decision making procedure
and discuss about the various things that happen in the Lets grow company. Planning is forward-

looking, and dictates the direction of the business. Nowadays, it is a reasonable and determines
an organization’s direction that will impact the company's future. It is a sort of coordinated
forethought and a retrospective correction. It includes anticipating the potential and trying to
monitor the occurrences.
Controlling: After the planning with the help of this report collect information about each
department that supports to collect all the information n regard of the business. According to
planning control all the activities in effective manner.
Decision making: After controlling take all the specific decision in regard of business that
supports to get effective results n future period of time. Lets grow take all the decision on timely
basis and apply the changes as per the situation.
Performance management/measurement: These reports are helping to analysis the
performance of company in effective manner. It is require to measure the performance with
different tools that supports to business in particular manner.
LO 3
(C) Cash Budget of six months
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 4000 4000
Depreciation on fixed
assests 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) 126000 127000 170000 158000 166000 178000
Total (a) - (b) 20000 49000 47000 13000 -9000 -25000
Short term and long term cash need: To operate business requires to cash that helps to conduct
different business activities. These requirements are categorized into short term and long term
manner. Take right action on right time and avoid such problems in particular accounting period.
Short term cash requirements to pay short term debts and long term cash required to invest
amount for achieve greater returns in company.
Future ability of company to pay debts: Solvency is a company's willingness to fulfill its long-
term commitments and financial responsibilities. Profitability is best to keep in industry, as it
shows the liquidity of a business to remain solvent in the coming years. The ability based on the
liquidity situation in company and how many debts arise in the business.
Helps the businesses how much credit it can extend to its customers before facing liquidity
problems: Arrange a meeting with customer discuss about the extension of credit time period
and provide some information about the company. When company extends credit to a customer
there are many inherent risks. There is risk that the client will not be paying. There's a risk that
the client will spend late. They also take the danger that the buyer just spends portion of the
balance payable.
Reveals expected surplus of cash which might be invested or loaned to shorter period:
Budgets revels period in shorter period of time that presents the surplus in cash that has been

invested for the loan to get returns in short period of time. For this require maintaining budget in
monthly and quarterly basis that presents actual position of business.
Ensures sufficient cash is available: This time cash budget is working in proper manner that
presents that how an organisation can received and payment of cash in particular accounting
period. This cash budget presents that how much cash available in the business and use of the
shorter debts that arise in the business any time. It will control the variations between budgeted
figures as well as actual figures that occur in particular period of time.
(d) Use of cash budget and its application for preparing and forecasting the financial position
Budget: Budgets are designed in certain types of industries to provide an estimate of
potential incomes and expenses for benefit gain. Budget is useful in determining an
organization's priorities and priorities by creating an estimate. The Lets Grow Ltd accountant
plans various forms of budgets that supports distribute resources and time in various actions in
order to generate profits and increasing the number of clients. In many other terms, preparation
resources support to manage and manage the over budget necessary.
Cash budget: It is a written estimate base budget in which an organisation analysis the
position cash. This budget prepare by an organisation to estimate some future activity in regard
of cash receipts from various sources. It provides cash position in quarterly, monthly and
annually basis. Accordingly a formal presentation of expected circular flow in regard of a
business entity. By developing a cash budget, in which a corporation provides a description of
expected sales, operating cost, selling and acquisition of property, and acceptance or liability
resolution, it is important to assess if more money funds are required and then when there is an
surplus of money. Such as, Lets Grow Ltd prepare of cash budget in which collect information of
credit sales and purchase. Along with total receipts and payments that conduct by the business in
specified period of time (Schmidt, 2017).
It is different from the income statement in which depicts movement of money whereas
the budgeted income statement presents all the sources of accounts and categorized all the kinds’
f expenditure in effective manner. During a particular financial year presents how much profit
has been generated by the business efficiently. In this budget comprise of all related inflows of

cash like income and non income sources including receipts from sale of inventory and receipt
from sales of fixed assets.
Importance of budget: It is very necessary to have a cash budget particularly for smaller
companies. This helps a business to set the amount of funding it may lend to clients against
counterparty risk. A financial budget helps to prevent a financial deficit across times where a
business faces a significant number of expenditures. If the company is unable to cover living
expenses due to a massive cash shortfall, this issue needs to be addressed quickly by getting in
more sales, postponing or removing any of the expenditures, or having the bank's permission for
a bigger loan.
Application of cash budget: It allows recognize short- and lengthy-term money
requirements that allow the administration flexibility to take necessary steps in order to prevent
these issues. It defines the company's potential willingness to fast payment exchange and other
obligations to reap the benefits of lease option. The cash budget consists of two major areas:
Sites of Money and Money Utilizes. The Origins of Money segment includes the immediate cash
position, and also money refunds from cash transactions, deferred revenue payments
transactions, and share buybacks. The Usage of Cash portion covers all expected cash investment
that arises from the budgets for raw supplies, capital equipment budget, depreciation expenditure
production, and budget for sales and operating expenses. It may also include budget items for
investors' buys of fixed assets and distributions (Dauth, Pronobis and Schmid, 2017).
Advantages: There are also benefits to utilizing cash financial planning. This method allows
assess whether cash holdings are adequate to satisfy daily commitments and if the minimal
criteria for stability and cash position specified by companies or company's internal legislation
are preserved. This also lets a corporation decide whether it holds so much cash that might
otherwise be invested in profitable activities. Businesses that lend from lenders want to track
their proportion of cash exposure and plan cash expenditure will be the first move in measuring
that ratio.
Disadvantages: There are mentioned different types of disadvantage of this budget such as:
Lack of flexibility: The method of budgeting includes generating figures to reach the budget,
reporting the cost estimates and sending those documents to leadership. Those figures do not

alter once released. Cash forecasts provide details about the planned pension liabilities of the
business. When the administration examines the cash budget, they make choices centered on the
funding needs anticipated. If the real financial requirements are greater than the estimate,
administration has already agreed to financial for the duration of the estimate.
Manipulation: Ulterior inspired administrators exploit budget figures to focus on themselves
well. A director who takes decisions that effect the cash budget can overest their expenditures for
the plan duration. Such documents planned disproportionately small cash overpayments. The
director is greeted with gratitude for her budget job. Nevertheless, the cash overpayments will
incur a difference if the real costs arise and do not follow the target numbers. The supervisor can
be in a specific role at that period and does not experience the consequences for their actions
(Galinova, 2017).
LO 4
(e) Management accounting system deal with financial problem
Every organization faces the financial issues which affect their operational as well as daily
activities. There are several issues which affect the Letts Grow Ltd and further influence the
productivity as well as profitability. Some of them are as follow:
Low profit margin: Company regularly face the issues regarding decline in profit margin
because of high demand of competitor’s goods. Due to wrong pricing strategy company face the
issues regarding decline in profit for the year.
Over expenses: In the Letts Grow Ltd, it is observed that overheads expenses are continue
increases which become the issues for organization to maintain decent revenue (Quilty,
Cosentino and Bagby, 2018).
Inventory management system: This system use by the business to monitor and control of
inventory system in the business. An inventory management system is a mixture of technology
(hardware and software) and processes and procedures that oversee the analyzing and
maintenance of stocked products, whether these are company assets, raw resources and
distributors or ready-to-send finished commodities to seller or end consumers. There are

different inventory levels that use by the corporation to manage the problem that based on the
inventory management system. With the help of this system manage the stock level effectively
and get effective results properly.
Price optimization system: This system use by the business to set effective price structure.
When company face the problem of low profitability that time require to apply this system that
supports to set right price each product that sell out by the company in particular accounting
period. It helps to managing profit. With the right structure know about the cost and how much
profit achieves by the company in particular period of time.
EOQ model: It will help to minimize inventory control costs even though EOQ is the lowest
possible proportion of additional cost. That could lead to increased issue preventive measures.
The Economic Order Quantity (EOQ) is the number of products a business should contribute to
the cost of goods sold for each effort to reduce total inventory levels including such cost of
ownership, expense of attempt, and expense of shortages. The EOQ model discovers the amount
minimizing the sum of those costs.
Management accounting techniques to resolve financial problems:
Key Performance Indicator: The businesses usually use them for calculating both their
quantitative and qualitative results. Letts Grow Ltd will use KPIs to address the issue of
declining profit as measures by using G.P. Ratio & N.P. Ratio would help it assess the income
patterns over the period.
Benchmarking: It is refers to establishing suitable standards and methodologies on which a
performance of the company could be evaluated. Such criteria and metrics may either belong to
the firm itself or to the sector. Letts Grow Ltd can address the issue with high overheads cost by
using benchmarking, since it can determine the limitations they will exist in.
Balanced scorecard: It is a method always had to assess departmental average success
within an organization (Singh and Verma, 2018). This is also important to evaluate the success
of the staff employed in these units extensively, accurately and consistently. This methodology
can also be helpful in addressing both the issues of high expenses and low profit margin since
this methodology can allow clear transparency.

Financial governance: This is the way of gathering, managing and monitoring financial
factual information, technical information used by a company. Letts Grow Ltd can use financial
governance to solve both its over expense issue or low margin. This strategy must be used
consistently and reliably in order for the company to produce greater performance in the long
term so that it can produce sustained profitability and leave its rivals in the industry behind. This
would help it reach the long-term target of benefit maximization.
Comparison between organizations that how to resolve financial issues:
Basis Letts Grow Ltd Creams Ltd
Financial Issues Company is facing the issues
of over expenses which
further minimize the
profitability due to high
expanses in comparison to
profit.
This organization unable to
manage their inventory level or
track the availability of stock in the
operations. It further generates the
issues regarding wastage of
material which cause high cost.
accounting system used In order to resolve financial
issues, company should
follow cost accounting system
where they evaluate each unit
cost and identify profitable or
non profitable activity which
further generates revenue for
the organization.
Creams Ltd have to follow
inventory management system to
manage their stock level. With the
help of it, managers can minimize
the wastage which further aid in
minimizing its cost as well
(Weetman, 2019) (Welsh, 2018).
Technique Benchmarking is the
technique which helps in
identifying the issues that
cause the high overhead cost.
Creams Ltd should follow key
performance indicator to resolve
the inventory management issues.

(F) Critical evaluation of the financial position based on forecasted cash budget
As per the forecasted cash budget it is analyzed that company have good position and
payment on time to all the clients. The company maintains liquidity position in adequate manner
and accordingly takes all the investment decision for the growth and success. This budget helps
to know about sales and purchase of business effectively and credit and cash activity. Lets Grow
Ltd through cash budget know that they have enough amount to pay debts in shorter period of
time.
CONCLUSION
As per the above report it has been concluded that management accounting essential for
each types of organisation. The cash budget is use by the company to analysis the position and it
helps to understand the actual financial position and take effective decisions. Along with various
reports and systems are helping to business in decision making procedure. There are compare
business with other company and use different systems to sort out all the financial problems
effectively.

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