Financial Management and Accounting Systems

This assignment delves into the complexities of a business's financial management system. It highlights various financial problems that arise in a business and discusses how they can be addressed through managerial accounting. The document draws from academic sources, including books and journals, to provide a comprehensive understanding of these issues.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................2
TASK 1............................................................................................................................................2
P1 Management accounting systems......................................................................................2
P2 Methods of management accounting reporting.................................................................5
TASK 2............................................................................................................................................6
P3 Difference between income statement made through marginal and absorption costing...6
TASK 3............................................................................................................................................8
P4 Advantages and disadvantages of planning tools which are used for budgetary control..8
TASK 4..........................................................................................................................................11
P5 Adopting management accounting systems for responding financial troubles...............11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

Report
From: Management Accounting Officer
To: General Manager
Subject: To write a report to GM covering management accounting and management accounting
system together with different costing techniques and reporting to enable the organization
implement them.
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INTRODUCTION
Management and accounting both terms are differ from each other and it is essential for
an association to make things correct and appropriate in nature in order to get sustain at market
for long term purpose (Burritt, Schaltegger and Zvezdov, 2011). Management is concerned with
diverse activities of business on the other hand accounting stated about detail description about
an association performance. Taj stores is a small business retail whom are dealing in household
materials. Management accounting support business managers to determine all deviations on
short term basis and take suitable steps so that such things and issues get deal properly. In this
project which is based on Taj stores need to determine and understand this concept of
management accounting as well as various MA system. Along with this, financial accounting
and managerial accounting both concepts are differ from each other on which association
authority have to make an appropriate differentiation. Moreover, there are different methods of
accounting are also determine which will get understand at the end of this project. Marginal
costing and absorption costing are two types of cost which support in analysing net profit of a
business. It also constitutes advantages and disadvantages of various budget planning tools and
their response towards various financial problems.
TASK 1
P1 Management accounting systems
It is not easy for a manager to take an adequate judgement within less time. For this
purpose, they will use management accounting system as these will assist to sort out each and
every kind of troubles related with financial and in addition non – financial (Dillard, 2014). It
will be typical for tiny organisations to raise funds easily. In this context, Taj stores is doing their
operations at small scale; therefore, they always try to acquire loan at less prices. Along with
this, they have to allocate fund correctively so that they will acquire higher returns. With
assistance of financial accounts manager will take an adequate judgement. Fundamentally, they
focus to record information appropriately; thus, this will be beneficial for superiors. There are
some distinctions amongst financial and managerial accounting which is stated as below:
Financial Accounting Managerial Accounting
This sort of accounts are formulated for Basically it is for intrinsic people such as staff
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extrinsic parties such as bondholders. members, employer and so on.
For this, past data will be used and manager
will take some extra time for preparation.
It has to be present on time and in addition
related with future.
Reporting is associated with entire firm. Specific area reporting.
With assistance of this, financial records will
be measured.
Examination of operational is done.
It is must for a public firm to prepare it as they
have to accomplish legal needs.
No legal bounding on company for formulation
of it.
Small organisations need to utilize various system of management accounting due to
numerous benefits (DRURY, 2013). Basically, tiny association has limited resources as well as
fund; therefore, they cannot bear huge waste. To determine faults employer has to utilize
procedure of management accounting; so that, they will make their business operations more
adequate. This aids to reduce confusion between various units; as a result, they will accomplish
their work within limited period of time. It is must for them to allocate resources effectively as
this will decrease unwanted cost. Following is explanation of procedures:
Inventory management system: If company stores goods in excessive range at storage
then, this will enhance their some expenditures, such as carrying cost. Along with this, if stock is
not sufficient as per requirement then, this will provide impact to supply chain and clients will
not able to fulfil their demands within limited period of time. Enterprise will utilize a software to
manage their entire inventory system; therefore, they can easily track their orders, determine
availability of stock etc. Manager will utilize EOQ methodology to identify correct time as well
as order quantity. As a result, wastage will get reduced and organisation will run in a smooth
manner. Instead of this, many firms maintain their records as per margin. If selling of an item is
high then, this will assist company to improve their revenues.
Cost accounting system: This is foremost significant aspect of system of management
accounting (Elbashir, Collier and Sutton, 2011). With assistance of this, they will decrease their
wastage. Fundamentally, this deal in the manufacturing unit but it has wider extent. Some
employer utilize it; so that, they can examine their revenues. There are some areas which needs
concentrate, such as material, labour and so on.
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Job costing: It is entirely distinguish system where it is must to examine capacity to
generate revenue. This, this is required for an enterprise to enhance their job number as this will
assist them to provide maximum benefit; as a result, profits of association will get improved.
This sort of method is used by firm when demand gets hike. Therefore, they can accomplish
requirements and demands of their users in an effective manner.
Price optimisation: Price of any product will depend on its demand. Hence, with
assistance of this tool correct value of goods will identified on which it has to be provide to
people. It is must for company to set affordable price of their goods and services. If it high then,
buyer will not purchase it and in addition it will provide adverse affect on firm. Rather than this,
if it is less then, this will lead to loss as clients will pay more for the product. Henceforth, price
optimisation methodology will aid to decide an adequate value of an item.
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Management
Accounting
system
Inventory
management
System
Cost
Accounting System
Job Costing
Price
Optimisation

P2 Methods of management accounting reporting
Each and every kind of company has to prepare various kind of report; therefore, they can
easily examine their work which is completed by them previously. In this context, there are
various methodologies which can be utilized by an affiliation are mentioned as beneath:
Inventory control reporting: With assistance of this report investigation will be done
that inventory is managed in an adequate manner or not and determine those areas which needs
improvement in future; therefore, real issues associated with merchandise will found out
(Flamholtz, 2012). For example: over as well as under stock can be settled without getting
postponed. With help of this report it will be determined that how much products need to be
present in firm recently and sales of company for a specific period of time. This technique is
using by Taj stores as it will aid them in reducing carrying expenditure. Along with this, it will
be determined that how much merchandise will need to be show in outlets. Various kinds of
items are selling by enterprise; thus, they are much able to fulfil requirement of firm. Entire work
will be completed through determining past faults.
Account receivable reporting: Mentioned organisation is doing their business in London
from past times. Thus, they are having numerous permanent clients who purchase product on
credit from them. Manager will make a report in which they recorded all credit amount which is
provided by them to people (Granlund, 2011). With help of it, employer will know that how
much amount they have to take from their creditors. This will be prepared on monthly, weekly or
quarterly basis. This report also helps them to determine those individuals who are paying their
remaining amount on time.
Performance reporting: With assistance of this, manager will easily examine their
performance of various departments. Taj stores is doing their business on small scale; therefore,
there are not much division. It doesn't mean that there is no requirement for them to develop this
report. They will formulate this, as it helps them to identify distinction amongst their actual as
well as expected performance. Mistakes and in addition good work, both has to be include in this
kind of report. It will aid superior to find out info related to their staff members; as a result, they
can decide their incentives.
Account payable reporting: By using this document manager of firm will determine the
amount which they have to pay suppliers. It is fundamental for employer of company to pay their
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credits on time as this will assist them to maintain their relations with others in an adequate
manner. As manager is paying their amount on or before time; hence, distributor will give some
discount to them. There is no particular time in production of this report, this will be prepared as
per the company's policy. Along with this, it also help to find out cash balance which is needed
by them in forthcoming time.
Budget reporting: It is necessary for company to develop an effective budget for their
business; as this will aid them to allocate fund to many units. This will help to make comparison
amongst actual as well as budgeted performance (Jaber, 2016). It will be related to a specific
year and it consists expenditure as well as income for a period. An adequate report of budget
helps to present performance of entire enterprise. With assistance of this report, confusion from
the worker's mind will get eliminated. As a result, they will accomplish coveted targets within
limited time span. It will contain some extra cost but this kind of expenditure will be much
beneficial for firm. By making budget, employees will use resources in a proficient way.
TASK 2
P3 Difference between income statement made through marginal and absorption costing
Income statements of any organisation will aid to identify their revenues as well as
expenses which are done by them. Therefore, a single method will help to make this i.e. profit
and loss account. Explanation regarding marginal as well as absorption costing is shown below:
Marginal costing: As indicated by this methodology, fixed expenses will be taken as per the
periodical basis (Koh and Tan, 2011). But, treatment of variable cost is done on normal manner
and it is deducted after the contribution. If company is going to launch any new product for their
clients then, for this aim they have to spent some additional fund on their production process.
Along with this, there are various things which has to be charged, such as material, overhead as
well as labour. Rather than this, some other expenditures need to be charged if they occur and
this will include fixed, administration and in addition selling cost.
Absorption Costing: It is entirely distinguish from the marginal costing. Both sort of
cost, i.e. variable as well as fixed, has to be allocated as per selling of units. But, there are some
expenditures which will never include while formulating of income statement, for example:
administration costs. This tool is considered as a conventional method of accounting. Along with
this, it is very old techniques which is using by most of the association.
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There are various differences amongst marginal and in addition absorption costing which
is stated as beneath:
Basis Marginal Costing Absorption Costing
Use This methodology will utilize
by employer of firm to take
decision in an appropriate
manner.
This will be used in extrinsic
report.
Accounting standards When manager is doing
valuation of their stock then,
they cannot use this sort of
method as per rules which is
described in accounting
regulation.
As indicated by the regulation
of international accounting, an
organisation will utilize this
tool at the time of valuation of
their merchandise.
Fixed cost According to this attribute, it is
must to deduct fixed
expenditure from contribution.
This will done if products are
sold out at same year.
This value will occur if items
are sell out at the similar year.
Inventory valuation It is essential to consider
variable cost if manager is
valuing their stock.
Whereas, according to this
tool, they have to consider
entire cost for this purpose.
Calculation through marginal costing using
Income statements
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2+3 = 16*500 8000 8000
Contribution 9500
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Less:
Variable sales overhead 500*1 500
Selling and administrative cost expenses (800+400) 1200 -1700
Total Profit / Loss 7800
Computation of Net profit by using absorption costing
Income statements
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2 - 7800
Closing stock: 100*13 - 1300 -6500
Gross profit 11000
Less:
Variable sales overhead 500*1 500
Fixed overhead -1800
Selling and administrative cost expenses (800+400) -1200 -3500
Total Profit / Loss 7500
Therefore, as indicated by above statement it has been understood that marginal costing
need to be utilized by company; therefore, they will prepare income statement. Because, with
assistance of this, they will gain maximum revenues i.e. £7800. Whereas, if they apply
absorption costing into their business then, revenues get diminished by £300. This difference
occurs due to the handling of fixed value. When enterprise uses marginal costing then, there
entire fixed expenses get deducted from the contribution so that they can find out their profits.
As an organisation will easily register their maximum revenues if they are using marginal
costing; therefore, this is the best approach which is used by Taj Stores.
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TASK 3
P4 Advantages and disadvantages of planning tools which are used for budgetary control
It is fundamental for an organisation to prepare budget for their business; therefore, they
can easily control their income as well as expenses in an adequate manner (Laudon and Laudon,
2016). With assistance of this, manager will check out that, staff members are doing their task as
per the planned manner or not. If there is any requirement of alterations then, this will be done.
Therefore, there are some techniques of planning which will be utilized by Taj Stores to control
budget and this is discussed as beneath:
Cash Budget: Fundamental aim of formulating budget is to cater data and information
which is related to cash. With assistance of this, need of cash will be examined. Along with this,
inflow as well as outflow of cash will also identified by this budget (Liao, Chu and Hsiao, 2012).
To run association in a smooth manner, it is required for them to use cash in correct manner.
There are various advantages which are associated with this method. It assists to decrease
hazards related to bad debts and in addition employer will make sure that organisation is
receiving remaining fund within limited period of time. Additionally, they are paying their entire
credits as per the time limit. As a result, firm will easily keep up good relations with their
shareholders and other institutions. They will also get assured that they are doing their
operational activities in a right way.
Rather than this, some of disadvantages which are connected with cash methodology.
Cash budget accuracy is much less as this will fluctuate as per the nature of environment. Thus,
it is not easy for manager to make adequate budget. This spending plan always developed by
taken into under consideration previous year data and information.
Master Budget: With help of this, an association can allocate distinguish resources to
various units of company. It never concentrate on a particular division but focus to achieve
organisational targets and objectives in an effective way. Instead of this, it can be portrays that it
is total or each and every budget which will be developed by company.
If superior prepare this kind of budget then, they can easily get ensured that they are
using resources adequately (Petty and et. al., 2015). As a result, unwanted cost will get decreased
which assist them to enhance their profits. Along with this, each worker know their roles and
responsibility in enterprise; therefore, it removes confusion amongst them. By getting right
direction they will accomplish their work within limited period of time.
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Utilization of this tool is much expansive as Taj stores is doing their working at a small
scale; thus, it is not easy for them to afford this. They are having limited fund which is required
by them to run their business operations in an appropriate way. This is a tiny association; hence,
they can easily eliminate confusion without utilizing any kind of method.
Capital Expenditure Budget: This sort of spending plan has to be prepare by company;
therefore, they can easily manage their financial assets effectively as well as efficiently. As a
result, they can easily purchase new equipment or building for their business. This will not
develop any sort of financial burden on firm (Roy and et. al., 2011). There are many kind of
strategies need to be prepare under it, such as long haul loans, borrowings and so on. It is
essential for each and every type of enterprise to formulate this budget as with assistance of this,
they can easily know that they will get success and growth in future or not.
It will aid to know the hazards which is related with judgement of investment. Along with
this, it helps to find out that which one is the best investment alternative for them and gives
higher return. This will also help to control entire expenditures which is associated with project
in a proficient manner.
It is formulated for the period of long term; therefore, it is much difficult for company to
make any alterations in it. Henceforth, level of certainty is much less. It has been comprehended
that strategy which is prepared in recent period of time is not relevant for future.
Zero based Budgeting: As indicated by this, at present it is must for company to
formulate new budget through evaluating each functions of firm. Manager never consider
previous budget. The base of this technique is begin with zero only.
Accuracy level is high of this spending plan and this plays an important part in procedure
of reduction of value. This will be done if allocation of resources is done in an adequate way. As
Taj stores are doing their business at small scale; therefore, they can easily adopt this tool of
budgeting. Along with this, manager will decrease entire unnecessary exercises with assistance
of this method.
If an enterprise is using this technique then, they need maximum workforce and it will
takes more time. If any tiny association is utilizing this tool into their business then, it will be
must for them to cater training to their staff members. This will help them to make expertise.
Activity based budgeting: According to this aspect, records related to previous data is
neglected and then, formation of budget is done with help of activities. It is required to examine
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each exercise adequately (Stair and et. al., 2011). Along with this, it is must to examine it; thus,
allocation of resources will be done in a proficient manner.
Instead of all of this, it will help remove inappropriate work which is enhancing business
cost and revenues are get diminished. By using this kind spending plan, manager will develop an
effective interaction amongst all units. As a result, this will aid to concentrate on entire
affiliation.
Utilization of this budget is much typical as it takes maximum money as well as time. As
Taj stores is doing their business at small scale so that functions which are performing by them is
less. Therefore, it is must for them to spend lots of fund on complex budget tools.
TASK 4
P5 Adopting management accounting systems for responding financial troubles
Business environment is dynamic in nature and it is changing quickly. This will develop
issues for a firm which can either financial or non – financial. Therefore, with assistance of
system of management accounting entire issues will sort out (Wagner, Moll and Newell, 2011).
But it is must for then to opt the correct method. There is a comparison amongst two association,
one is Taj Stores and another is Vectair Holding. Taj stores is using modern methodologies into
their business, whereas, another firm is utilizing traditional methods.
Taj Stores Vectair Holdings
As they are using lean accounting method into
their organisation which assist them to take
benefits from their competitors because by
utilizing this, they can easily reduce their
waste.
Company is using conventional method which
is much simpler. But, through this they are not
able to take benefits from their rivals at
marketplace.
Lean accounting is much complex as
comparison to old methodologies. This will
consumes additional period of time in
evaluation of data.
It is very easy to use traditional approaches
into business but manager will not examine
information in an adequate way.
The fundamental benefit of this method is
“Making correct and quick call”.
Whereas, they are not having these kind of
advantages.
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Organisation is using new or latest methods as
well as updated software; as a result, they will
accomplish their task in more effective
manner.
They maintain their accounts manually only.
Therefore, there are some issues which will be face by Taj Stores if they do not use
appropriate methods. Problem will be associated with profitability, price maximisation, cost
efficiency, performance and control and so on. To resolve them efficiently it is must for manager
to use and develop best strategies or tools which are mentioned as beneath:
Key Performance indicators: With assistance of this, employer will keep up
appropriateness of their firm which will help them to attain long term targets in an adequate way.
To resolve issues which are associated with finance, it is must to set SMART objectives. As a
result, company can decrease their debts proficiently. Rather than this, by setting their goals in an
particular way they reduced their debts by 15% which assist them to improve their goodwill at
marketplace. Objectives need to be measurable; therefore, this can be easily compared from
previous data and information and in addition it has to be real; so that it will achieve efficiently.
Like, Taj stores wants to reduce their overall debts in next 5 years which will not cater any kind
of burden on them and they will accomplish their entire work proficiently.
Benchmarking: This has to be present in each and every kind of enterprise. It is must for
superior to set some standard for their goods and services; therefore, they will do their
production by maintaining quality. Along with this, they can easily cope up from financial
difficulties. As a result, this will help to decrease influence of unfavourable circumstances which
is related with firm.
Financial Governance: It is required for company to do intrinsic audit and follow each
and every laws or regulations which are formulated by regulatory body. Therefore, an enterprise
will run their business in an adequate manner. Along with this, entire issues will sort out within
limited period of time which help them to maintain their revenues.
CONCLUSION
It get concluded from the project that managerial accounting is an essential and important
concept for business through which an organisation become able to deal with various problems
which arise in short period of time. There are various methods and system are identify which are
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related with business association. On the basis of these methods and system, management
become able to deal with diverse problems and issues of an organisation which are harmful for
business. Managerial and absorption costing both enables an association to determine their net
profit. There are various advantages and disadvantages are determine which are related with
budgetary tools so that association become able to frame such budget which facilitate long term
growth and resolve all minimum problems of a business. There are various financial problems
and issues arise in a business which get respond only by applying relevant approach which is
managerial accounting.
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