Managing Accounts: Principles, Techniques, and Benefits

This report provides an overview of managing accounts in business, including the principles, techniques, and benefits. It covers the relevance of management accounting, different types of management accounting systems, and various management accounting reports. It also explains cost evaluation techniques such as marginal costing and absorption costing. The report highlights how managing accounts can improve profitability and decision-making in organizations.

Managing Accounts

EXECUTIVE SUMMMARY
Management accounting is a process of collecting, analysing, organizing and representing
information in such a way which useful in take decision and operate business in effective way.
This report is prepared to define how managerial system, techniques tools of planning use to
measure performance and help in decision making process . It is also recognize how various
technique of management accounting useful in solving financial problem.

Table of Contents
INTRODUCTION...........................................................................................................................1
SECTION 1......................................................................................................................................1
PART A...........................................................................................................................................1
Meaning of management accounting. .........................................................................................1
Relevance of management accounting. ......................................................................................1
Principle of management accounting. .........................................................................................2
Benefits of managing accounting approach in business. ............................................................2
PART B............................................................................................................................................3
Meaning of management accounting system. .............................................................................3
Types of system of management accounting. .............................................................................3
Meaning of management accounting reports...............................................................................4
Explanation of various types of reports of management accounting. .........................................4
Benefits of management accounting system................................................................................4
Integration of system of management accounting & its reports..................................................5
PART C...........................................................................................................................................5
Meaning of cost. ..........................................................................................................................5
Explanation of types of cost techniques. .....................................................................................6
Meaning of marginal costing and formulation of its statement. .................................................6
Meaning of absorption costing & formulation of its statement. ................................................7
PART D...........................................................................................................................................8
Impact of techniques of management accounting........................................................................8
SECTION 2......................................................................................................................................9
PART A...........................................................................................................................................9
Meaning of budget.......................................................................................................................9
Types of budget............................................................................................................................9
Planning tools use for the purpose of budgetary control...........................................................10
PART B..........................................................................................................................................12
Explanation regarding financial problem and how organization deal with theses problems.. 12
PART C..........................................................................................................................................12

Application of tools of planning to control financial problem..................................................12
Use of tools of management accounting to respond financial problem.....................................12
CONCLUSION..............................................................................................................................14
REFERENCES................................................................................................................................1
APPENDIX......................................................................................................................................3

INTRODUCTION
Management accounting is define as branch of accounting which applicable in every
business organization. This approach is developed for effectively use profession knowledge in
decision making process. This report is formulated to define relevance of managing accounting.
For this purpose Capital Joinery has been taken. In this report requirement of management
accounting, its principle use of system as well as how cost calculate to determine profit. It is also
measure tools of planning for budgetary control and use of benchmarking, key performance
indicator to overcome financial problem.
SECTION 1
PART A
Meaning of management accounting.
Management accounting: This term define as accounts which formulate for enhance
managerial efficiency of organization by providing accurate and relevant business data. In other
words it is concerned with provide professional knowledge in such a way which beneficial for
management of organization to formulate policies, strategies and take decision to run data to day
business operations (Bloom, Sadun and Van Reenen, 2016).
Relevance of management accounting.
Management accounting approach is useful for run business in systematic way,
management department of Capital Joinery apply this approach for following reasons:
Formulation of plan: With the use of various tools and technique of management
accounting, manager formulate their future business plan on the basis of analysis and observing
the future market conditions.
Useful in take decision: By recognize and calculate cost of each department manager
able to find out which project is much more beneficial for their organization, on the basis of that
they take decision regarding selection of projects or business alternatives.
Measure performance: Management accounting is essential as with the use of tools of
this approach, manager of can evaluate their organizations' financial performance for given time
period which beneficial for identify the position of entity in market.

Principle of management accounting.
While applying approach of management accounting following are some principle which every
organization need to follow, these are define below:
Relevance: It is essential that every information which collect by accountant is relevant
and reliable. As on the basis of data collect from using different managing accounting tools
manager take decision on the basis of observing these data.
Value analysis: Management accounting principle based on the connect that each and
every detail and calculation useful in analysis value of organization (Botzem and Dobusch,
2017).
Communication: This is consider as most important principle of managerial accounting. This
principle states that every information and decision must be communicate in such as way which
help in decision making process. It is easily understand by each department. As well as
information provides by managing reports must be understood by internal & external
stakeholder. Thus manager of Capital Joinery need to formulate reports in such a way which is
easily communicate to every department of organization.
Product & strategies: This principle is useful apply for practical life, t is based on the
assumption is that, product and strategies holds be made in such a way which beneficial to
satisfy customer demand.
Benefits of managing accounting approach in business.
Following are the benefits of applying this approach:
Provides reliability: By using management accounting approach it provide base to
formulate financial statement which showcase relevant and reliable information regarding
financial performance of Capital Joinery.
Raise profitability: On the basis of using techniques of cost calculation manager
recognize which activity or item is the reason of arising of high cost, on the basis of tat manager
formulate polices to cut cost of operating operation which useful in raise profits. By using
effective pricing strategy also beneficial for Capital Joinery to increase their rate of generate
revenue (Bourmistrov and Kaarbøe, 2017).
Better services to customer: On the basis of analysis market condition they analysis
demand of customer and formulate their product design in such a way which helpful in satisfy
their customers.
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Useful to spread business share: On the basis of using effective pricing strategies they
increase their profitability rate and improve quality of product which beneficial in build strong
goodwill which is helpful in spread market share of Capital Joinery.
PART B
Meaning of management accounting system.
Management accounting system: These are consider as system which manager use for
implement strategies and management accounting approach in order to successfully manage
organization (E]Guindy and Basuony, 2018).
Types of system of management accounting.
Following are the system which management department of Capital Joinery implement within
their organization:
Cost accounting system: This system is implement for calculate cost of each business
activity. Manager of Following are the system which management department of Capital Joinery
implement within their organization: use different technique which includes, marginal,
absorption and standard costing to evaluate cost of each business activity which useful in find
out activities which incurred high cash outflow and measure rate of profit (Bakhodirovna, 2019).
Price optimization system:This system help in provide various approach to apply
pricing strategies, manager of Following are the system which management department of
Capital Joinery implement within their organization have option to choose, price penetration,
price skimming, discounting and premium strategy, with the implementation of correct pricing
strategy , they can satisfy their customers able to generate profit (Hörisch, Schaltegger and
Freeman, 2020).
Job order system: Manager implement this system for find out cost required to complete
requirement of order of each job. On the basis of that manager can evaluate time require for
completion of demand of customer and revenue generate from completion of each order of
customer. Theses type of system useful for organization which work on the basis of demand of
different customer (El Guindy, and Basuony, 2018).
Inventory management system: This system is implemented within the organization for
evaluate cost of managing stock as well as time required to conversion of raw materials into
finished goods selling inventory to their final customer. Stock is consider as essential element of
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business organization, thus manager of Capital Joinery by using ABC analysis, VED and LIFO,
FIFO method of accounting able to manage and control their level of inventory (Hörisch,
Schaltegger, and Freeman, 2020).
Meaning of management accounting reports.
Management accounting reports: Theses are documents which are used for the purpose of
collection of data wand represent them in such a way which beneficial for decision making
process (Hyndman and Liguori, 2016).
Explanation of various types of reports of management accounting.
There are different types of managerial accounting reports which are formulated by
manager of Capital Joinery, these are define below:
Inventory management report: This report is formulated on the basis of collection of
data of from technique and tools use in system of inventory management. This report define all
the essential information regarding time require for management of stock and delivering it to
customers and cost require storing of inventory, maximum, minimum and normal level of stock
require for specific period of time. These information are given in inventory management report,
on the basis of that manager take decision for managing inventory.
Performance report: This report is formulate for define summery of each report, it
includes the performance of each department, time require for manufacturing of product ,,
delivering of service, rate of employee turnover, their performance, on the basis of that manager
of Capital Joinery formulate polices and give rewards to employee by evaluate their
performance.
Product / Service profitability report: This is consider as one of the most relevant
report of management accounting. Product report is formulate to measure the rate of profitability
and income generate by running business operations (Jack, Florez-Lopez and Ramon-Jeronimo,
2018).
On the basis of data summarised in this report manager of Capital Joinery find out which
product or service provides them more benefit as compare to others.
Benefits of management accounting system.
System Benefits
Job costing This system is implemented for recognise cost
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required for completion of each job. Job
costing system help in evaluate time require for
completion of demand on the basis of that
manager formulate policies regarding each job.
Costing system Manager of Capital Joinery implement this
system for evaluate cost of each business
operation, on the basis of formulation of cost
statement manager recognize which alternative
is benefit for the purpose of minimize cost and
generate high profit (Kruis, Speklé and
Widener, 2016).
Price optimization On the basis of using this system manager
select pricing strategy which help in generate
profits. By applying price skimming strategy
manager of Capital Joinery able to generate
profit and attain competitive business
advantage.
Inventory management system This system is apply for controlling cost
require to manage and store of inventory. On
the basis of tools use by this system
Integration of system of management accounting & its reports.
Manager of Capital Joinery use various concept of management accounting they apply
system of cost, inventory and job order system on the basis of that they collect essential
information which beneficial to proved base for formulation of accounting report. Thus
integration of systems in reports require to play essential role while applying this approach.
5

PART C
Meaning of cost.
The term cost define as amount of money which organization spend in order to
formulation or production of their products and providing of services. This amount is useful in
determination of profit. The process of determining cost is known as costing.
Explanation of types of cost techniques.
There are various technique though which manager can analysis or evaluate cost of
business operations. Following are define below
Fixed cost- Theses type of cost includes those expense which amount is not vary for
changing of production units. Theses expense remain constant (Li, 2019).
Variable cost: These includes those expense which are change with changes of outputs.
Thus these expense known as variable expense. Generally it help in find out impact of cost on
changing of outputs.
Meaning of marginal costing and formulation of its statement.
Marginal costing: It is define as technique which help in measure changes in cost per
unit by changing in outputs. Marginal costing also known as variable cost. Because while
calculating of profit it only consider variable elements (Bakhodirovna, 2019).
Note: Data regarding this calculation is define below in appendix section.
MARGINAL COSTING
Particulars May £ June £
Sales 25,0000 18,7500
Less: Variable Costs
Sales Commission 5000 3750
Variable production overhead 2,0000 1,5000
Direct Material 6,0000 4,5000
Direct Labor 4,0000 3,0000
Total Cost 12,5000 9,3750
6

MARGINAL COSTING
Contribution 12,5000 9,3750
Less: Fixed Cost
Fixed Selling 1,0000 1,0000
Fixed Production Overhead 2,0000 2,0000
Fixed Administration 3,0000 3,0000
Net Profit 6,5000 3,3750
Working Note: (May) £ Amount
Sales 250 * 100 25000
Direct material 60 * 100 6000
Direct Labor 40 * 100 4000
Variable production
overhead 20 * 100 2000
Working Note: (June)£ Amount
Sales 250 * 70 187500
Direct material 60 * 750 45000
Direct Labor 40 * 750 30000
Variable production overhead 20 * 750 15000
Meaning of absorption costing & formulation of its statement.
Absorption costing: It is define as technique of costing which consider each element of
costing. It includes fixed as well as variable element (Dillon, Oliveira and Abbasi, 2017).
ABSORPTION COSTING
Particulars May £ June £
Sales 25,0000 18,7500
7

ABSORPTION COSTING
ABSORPTION COSTING
Particulars May June
Sales 25,0000 18,7500
Less: COGS
Variable Sales Commission 5000 2750
Variable Manufacturing Cost 2,0000 1,5000
Direct Material 6,0000 4,5000
Direct Labour 4,0000 3,0000
Fixed Production Expenses 2,0000 2,0000
Gross Profit 10,5000 7,4750
Less: Selling and Distribution
Costs
Fixed Selling 1,0000 1,0000
Fixed Administration 3,0000 3,0000
Net Profit 6,5000 3,4750
Working Note: (May) Amount
Sales 250 * 1000 last five year
250000
Direct material 60 * 1000 60000
Direct Labour 40 * 1000 40000
Variable production overhead 20 * 1000 20000
8

Working Note: (May) Amount
Sales commission 2% * 250000 5000
Working Note: (June)
Sales 250 * 750 187500
Direct material 60 * 750 45000
Direct Labour 40 * 750 30000
Variable production overhead 20 * 750 15000
Reconciliation Statement
Particulars May£ June £
Profit or loss (under marginal
costing)
6,5000 3,3750
Less: Profit (under absorption
costing)
6,5000 3,4750
Add: Closing Stock 8,0000 6,4000
Over Absorption 8,0000 63000
PART D
Reflection on task C
Manager of Capital Joinery apply techniques of costing through which they are able to
calculate cost of running business operations (Lai, Leoni and Stacchezzini, 2019). With the
formulation of marginal costing statement they can analysis impact of changing of each business
unit and execute profit volume. Which is beneficial for take decision of cost reduction and
formulator policies top enhance their rate of profitability. Accounting techniques are useful as
well as beneficial for the purpose of finding out error as well as cases or main reason of arises of
difference. On the basis of evaluate cost statement manager formulate strategies which help in
overcome issue.
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SECTION 2
PART A
Meaning of budget.
Budget: The term budget define as document which formulated to represent summery of
expected cash inflow & outflow. It is prepared to for update financial information and forecast
future scenario of business organization.
Types of budget.
There are many types of budget which organization can formulate which are define below:
On the basis of time: Budget are formate on the basis of term which define below
 Long term: Budgets which formulated for long term pu5rpose which generally mire
the4n of 5 years are known as long term budget. In these types of budget all the
information are related with departments or profit and expense all the data of these items
are forecast for 5 years of time period ( Maran, Bracci and Funnell, 2016).
 Medium term: This budget is prepared to recognize profitably and forecast business
performance for period of medium term. This generally includes 3 to 5 years.
 Short term budget: Budgets which are formulated and define information for 1 to 3
years are known as short term budget.
 Theses are formulated for forecasting success rate of organization and their ability of
selling goods for within short period of time.
On the basis of variability:
 Fixed budget: Theses types of budget are define as statement which are not changed
with duration of time or variation of changes in output. Data stated in fixed budget are
constant and generally only consider those items which are fixed from nature.
 Flexible budget: Theses are consider as most popular budget as document are
formulated to adjust changes arrived in actual level of revenue. These type of budget
represent changes of profitability with changes of output units of organization (Mata,
Fialho and Eugénio, 2018).
On the basis of department:
 Sales budget: It is formulated to define the net sales for specific period of time. On the
basis of formulation of sales budget manager of Capital Joinery able to allocate their
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resource in such a way through which they can utilize resources (Moosavi Nezhad and
Namzi, 2016).
 Production budget: On the basis of formulation of production budget, cost require for
production of business units can be identifies last five year
 It is useful for the purpose of formulation of future business polices.
 Marketing research budget: Statement formulated to define activities and cost require
for the purpose of marketing and research it is known as formation of master budget.
Master budget
Procedure of formulation of budget.
Budget
Net income 100000
Interest on investment 4000
Revenue incurred from business activities 20000
Net expenses
Loan 1200
Purchase hair spa machine 1800
Salary 2500
Stationery expenses 800
Advertisement 1000
Insurance 500
Travelling 200
Stationery expenses 100
Planning tools use for the purpose of budgetary control.
Planning tools: It define as tool which help in formulation of plan. Manager of Capital
Joinery,use following tools of management accounting:
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Cash budget: It is part of budgetary control, this statement is formulated to define
annual rate of cash inflow and outflow activities which useful in identify activities of incurring
high rate of cash outflow. Following are benefits ad drawbacks of this tool of budgetary control:
Advantages
Cash budget useful in provides estimated amount of cash inflow & outflow.
 It is useful for compare financial performance of organization for specific period of time.
Manager of Capital Joinery use it to compare with tits rival organization.
Disadvantages
 While formulating cash budget manager of Capital Joinery not includes or consider
element of time value.
 This budget is based on previous data thus it is not required that information define in this
budget is accurate (Nakmahachalasin and Narktabtee, 2019).
capital expenditure budget: This budget is formulated in order to provides essential business
information related with expected expenditure require to purchase business assets for long period
of time.
Advantages:
 Capital expenditure budget useful in identify new opportunities and manager of Capital
Joinery apply this system in order to take decision.
 Help in formulate policies to control expenditure.
Disadvantages:
Decision are based for long period of time, and majority is irreversible in nature.
Formulation of this budget require time and cost .
target cost pricing: This tool of planning is based on price based costing. Manager on the basis of
evaluating of market formulate pricing strategies and select price which help in satisfy customer ,
they on the basis of recognize estimate price which customer able to pay, selected their product
price which useful in attain last five year their target business profit (Taygashinova and
Akhmetova, 2019).
Advantages:
 By formulation of this budget manager of Capital Joinery able to find out new
opportunities.
 Help in creation of economic of scale by increasing profit rate of operations.
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Disadvantages:
 It is difficult and lengthy process of scanning of market for selection of target price, thus
management department of Capital Joinery face issue while formulating this budget.
PART B
Explanation regarding financial problem and how organization deal with theses problems.
Manager of Capital Joinery use various types of planning tools. They use to formulate
flexible cash budget to recognize future expected cash inflow & outflow as well as they by
formulate cash expenditure budget able to estimate future expenses on the basis of that they set
target piece of product and formulate policies to control the cost in order overcome financial
problem (ter Bogt and Tillema, 2016).
particular XYZ limited Capital Joinery
Financial problem This organization face problem
related with finance due to
decline selling rate (van
Helden and Reichard, 2019).
The main reason of facing
financial issue is decline rate
of performance of employee .
System apply By applying price optimization
system , manager of XYZ
limited able to set standard
price which satisfied customer
and able to generate profit.
Department of management
by implementing inventory
management and cost
management system can
control cost require to maintain
inventory and increase product
quality, by improve
performance of employee.
Technique to be used By applying key performance
indicator they able to
overcome their financial
performance by setting target
Management department of
Capital Joinery, they by
applying policy of financial
governance and and using
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of selling units. benchmark motivate employee
to work towards attainment of
goals in order to overcome
financial problem.
PART C
Application of tools of planning to control financial problem.
Financial problem: This term define as situation which arises due to mismanagement of
cash assets or lack of availability of financial capital. It is a situation where organization not
capable to full-fill their debt liabilities. At present time Capital Joinery face financial problem,
management department of this organization not able to to formulate policies which help in
increasing the sales rate and motivate employee.
Due to decline in the sales rate, organization not capable to generate profit thus they
suffers from financial problem it directly impact on their profitability rate and cash inflow
activities, their human resource are also not work in effective way and work with full capacity
thus their rate of production and quality of products decline which directly impact on the sales
rate. Thus Capital Joinery face issue related with money due to mismanagement of their
management policies (Moll and Yigitbasioglu, 2019).
Use of tools of management accounting to respond financial problem.
Management department of Capital Joinery by applying technicals and tools of
management accounting can able to overcome their issue which generated due to lack of
financial capital. Following are the tools which define below:
Key performance indicators: This tool is consider as essential part of management
accounting technique. It is a technique to measure performance of their organization.
Manager set key indicators on the basis of that they evaluate performance of their
employee. Wit(Moll and Yigitbasioglu, 2019)h the use of key performance indicator
manager formulate their reward policy and on the basis of evaluating performance they
give recognition to employee. Management department of Capital Joinery by using this
tool select target of selling products to their sales department employee. And formulate
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policy regarding with incentive which help in attract and motivate employee toward
achievement of their target.
Benchmarking: It is similar like KPI , the only difference between these tools is that, in
benchmarking, manager use set target or benchmark from their previous record or standard
benchmark of industry. Manager of Capital Joinery by setting benchmark able to increase sales
rate.
Financial governance: It is a policy which use to regulate, monitor & control
information related to finance. Generally this tool help in tracking all the records and influence
to follow ethical rules & regulation regarding running business operations. By applying this
policy the rate of internal coherence and chance of making secret profit is reduce which help in
enhance performance of employees.
CONCLUSION
From the above analysis it has been concluded that every business in order to maintain
their position in market need to implement and use approach of management accounting. By
using various system of management accounting they can able to collect, represent and measure
their data in effective way. By using marginal and absorption costing manager can calculate
overall profit and evaluate cost require for completion of business activity. They can control their
cost and attain competitive business advantage by using tool of budgetary control. In order to
control or manage their financial problem they can use use key performance indicator ,
benchmarking & balance scorecard these tools helpful in overcome issue related with finance
15

16

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APPENDIX
Selling price : 2500
Direct material:600
Direct labour:400
Variable overhead:200
Detail of may & June
Production of A 1000 800
Sales unit 1000 750
Fixed sale: 10000
Administration expense: 30000
Variable sale 2 %.
Fixed overhead : 20000per month
Formulate marginal and absorption income statement.
3