Management Accounting and its Role for Business Entities

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK 1............................................................................................................................................3
TASK 2............................................................................................................................................7
TASK 3 .........................................................................................................................................12
TASK 4..........................................................................................................................................13
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17
APPENDIX....................................................................................................................................18
...............................................................................................................................18

INTRODUCTION
The term management accounting (MA) is a type of accounting that is associated with
process of collection of monetary and non monetary data of business entities in order to produce
internal managerial reports (Al-Qady and El-Helbawy, 2016). In this accounting, each aspect and
element of companies are covered in a detailed manner so that management department can take
suitable steps in an effective manner. The main objective of project report is to understanding
about MA and its role for businesses. For better understanding, a manufacturing company has
been chosen that is The London Clothing Works (Sel Ltd). The company is located in London,
United Kingdom and operates in production of vital range of cloths.
The project report covers about different types of management accounting systems
(MAS), vital range of MA reports as well as budgets. In addition, financial statements are also
prepared on the basis of monetary data on assumption basis. Further part of project report covers
about role of MAS in sorting monetary issues.
MAIN BODY
TASK 1
MA and its role of business entities.
Management accounting- As above stated, the term MA is an accounting that involves in a
systematic procedure of collection of detailed information regards to various kinds of business
transactions (Wnuk-Pel, 2016). The objective of gathering this detailed information about
quantitative and qualitatitive aspects is to produce internal reports that help to managers in taking
crucial decisions in different situations. This accounting plays a significant role for companies
that are as follows:
 Helps in effective planning- This accounting plays an important role in the context of
making effective planning of different types of available resources. It becomes possible
because on the basis of gathered information, managers can analyse futuristic activities
that helps in better planning. Such as in the above London Clothing Works (Sel Ltd),
their managers of different departments make effective planning by produced internal
reports as accordance of this accounting.

 Helps in better controlling- In addition, MA is beneficial for companies in order to make
better control over different kinds of activities and operations. This is so because by
utilising key information from internal reports, managers become able to focus on those
activities that are leading lower profit or higher costs. Same as in the above London
Clothing Works (Sel Ltd), their managers control different aspects in an a better way by
help of this accounting.
 Helps in better decision making- Another benefit of this accounting is that it is useful for
better decision making (Akroyd, Biswas and Chuang, 2016). Such as in the above
London Clothing Works (Sel Ltd) company, managers take corrective actions and
decisions by help of this accounting.
Types of MAS:
 Price optimisation system- It is an accounting system that is aligned in a systematic
process of guiding companies for applying corrective pricing strategies. This becomes
possibel because under it, a proper research is done about customers' need, wants and
demand. On the basis of it, business entities become aware about what types of changes
are needed to be done in current pricing patterns. Thus, this accounting system is useful
for companies in order to set the prices at a level that can help in increasing total sales
revenues. Such as in the aspect of above London Clothing Works (Sel Ltd) company,
their sales department is using this accounting system in order to revise price of products
at a level that can help in increasing sales units.
 Inventory management system- This can be defined as an accounting system that is
assigned in the tasks of keeping track record of all types of inventories that is purchased
or sold out by companies. The objective of this accounting system is to make possible
that effective utilisation of stored material is being done by business entities. In addition,
it is essential for companies in order to keep the cost of material below estimation. This
accounting system manage all types of activitis and operations regards to inventory
management on the basis of effective technique of inventory valuation such as LIFO,
FIFO and weighted average method. In the London Clothing Works (Sel Ltd) company,
their production department make effective management of raw material like cotton, fiber
etc. in an effective manner by help of this accounting.

 Cost accounting system- It is an accounting system which is responsible for accurate
prediction and controlling of overall cost of various kinds of activities and operations
(van, Caperchione and Caruana, 2016). Under this accounting system, detailed record of
estimated cost and actual cost is included that helps to managers of companies in order to
keep cost lower of different operations. In the aspect of above London Clothing Works
(Sel Ltd) company, their finance department manage cost of various kinds of operations
and activities regards to productions by help of this accounting.
 Job costing system- This is an accounting system that is related with assigning cost of
each particular unit by help of computing total job cost. It is mostly applied by those
buiness entities wherein wide range of products are produced. This is so because by help
of this accounting, the production department become aware about which products cost is
below expected cost and which ones is not. Like the above London Clothing Works (Sel
Ltd) company, is involved in production of different types of cloths and help of this
accounting their production department assess the cost of each individual unit of
produced cloth.
Difference between management accounting and financial accounting:
Basis Management accounting Financial accounting
Purpose The key purpose of this accounting is
to do effective management of
internal perspectives.
While this accounting's objective is to
produce financial statements at the end
of accounting period.
Information Under this accounting both monetary
and non monetary information is
included.
On the other hand, in this accounting
only financial information is included.
Necessary This is not necessary to implement it
in each year.
While this is necessary to apply this
accounting for companies.

MA reports- These are kinds of reports that consists information about monetary transactions of
specific time period. The MA reports are useful for business entities in order to take corrective
steps for managing available resources. The above accountant of above London Clothing Works
(Sel Ltd) company produce below mentioned reports that are as follows:
 Accounts receivable ageing report- This a kinds of report that consists information about
total debtors whose payment is not received even after the due date (Phan, Baird, 2017).
The report keeps systematic record about date on which transaction is done, total debt
amount as well as interest rates. By help of this report, managers can easily access
information about total debt amount which is required to collect. Such as in the above
London Clothing Works (Sel Ltd) company, their finance department collects debt
amount from their customers in less time period and cost. Due to this their receivable turn
over ratio also improves.
 Stock report- It is a report, that contains information regards to quantity of all forms of
inventories such as raw material, work in progress and finished goods. Under this report,
information is included on the basis of proper valuation of inventories as accordance of
LIFO, FIFO and weighted average methods. It is beneficial for business entities in order
to control overall cost of storage. For example in the above London Clothing Works (Sel
Ltd) company, their production department utilise key information about raw material
and finished goods by help of this report.
 Performance report- This is a type of report that includes information regards to
estimated and actual outcome of different kinds of activities and operations. On the basis
of it, managers of companies take suitable action regards to improving overall
performance. In the aspect of promotion of employees, information provided by this
report plays a significant role. This is so because managers assess each individual
employees performance so that their progress can be assured. In the context of above
business London Clothing Works (Sel Ltd), their employees are promoted to upper level
on the basis of key information utilising through this report.
 Budget report- It is a report that includes information regards to estimated revenues and
expenses as well as actual outcome (Yigitbasioglu, 2017). Due to this, variance is
calculated of different activities that helps in taking corrective actions for futuristic time