Financial Analysis: Management Accounting Report for Pele

This report presents a comprehensive analysis of management accounting principles, focusing on the financial performance of Pele company. The report begins with the preparation of sales and cash budgets, detailing revenue projections and cash flow management. It then proceeds to construct key financial statements, including income statements and balance sheets, to assess the company's profitability and financial position. The report also explores the purpose of budgeting, emphasizing its role in forecasting, decision-making, and evaluating business performance. Furthermore, it highlights the importance of cash budgets in maintaining liquidity and improving the cash position, while also examining the interaction of human behavior with the budgeting process. The analysis incorporates working notes to explain calculations and assumptions, providing a clear understanding of the financial data and its implications for Pele company's management and strategic decisions. Finally, the report concludes with a synthesis of the findings and a list of relevant references.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
PART 1............................................................................................................................................3
1. Sales budget in units and Revenue...........................................................................................3
2. Cash receipts budget................................................................................................................3
3. Cash payment budget...............................................................................................................4
4. Summary cash budget..............................................................................................................4
5. Preparation of income statements............................................................................................4
6. Preparation of balance sheet....................................................................................................6
7. Explain the purpose of budgeting............................................................................................7
8. Importance of cash budget and improvement in the cash position..........................................7
9. Interaction of human behavior with budgeting process...........................................................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9
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INTRODUCTION
Current role of organizations has increased with the external market difficulties in
business environment. Pele company has been selected for the given project report whose
decisions are taken by using various approaches. The current project report is all about preparing
several budgets and preparing financial statements.
PART 1
1. Sales budget in units and Revenue
Particulars January February March
Sales units 100000 115000 132250
Particulars January February March
Sales units 100000 115000 132250
Sales price 8 8 8
Total revenue 800000 920000 1058000
2. Cash receipts budget
Particulars January February March
Projected sales 800000 920000 1058000
Cash sales(25%) 200000 230000 264500
Collection from debtors(W.N.1) 472500 540000 621000
Total cash receipts 672500 770000 885500
Working notes
Particulars January February March
Credit sales(75%) 525000 600000 690000
Collection from debtors 472500 540000 621000
3. Cash payment budget
Particulars January February March
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COGS 560000 644000 740600
Inventory purchase 224000 257600 296240
Trade payable 196000 336000 386400
salaries 21000 21000 21000
Advertising and promotion 16000 16000 16000
Administrative salaries 21000 21000 21000
Sales commission 8000 9200 10580
Total cash payments 486000 660800 751220
4. Summary cash budget
Particulars January February March
Opening cash balance 500000 686500 795700
Total cash receipts 672500 770000 885500
Total cash inflow 1172500 1456500 1681200
Total cash payment 486000 660800 751220
Closing cash balance 686500 795700 929980
5. Preparation of income statements
Particulars January February March
Sales 800000 920000 1058000
COGS 735000 644000 740600
Gross profit 65000 276000 317400
Selling and admin 58000 58000 58000
Sales commissions 8000 9200 10580
Depreciation 25000 25000 25000
EBIT -26000 183800 223820
Interest 2500 2500 2500
EBT -28500 181300 221320
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Working notes
Closing
stock
Particulars January February March
Closing
stock 840000 966000 1110900
COGS
Particulars January February March
Opening
inventory 280000 322000 370300
Purchases 777000 692300 796145
Closing
stock 322000 370300 425845
COGS 735000 644000 740600
Selling and admin
Expenses
Particulars January February March
Sales salaries 21000 21000 21000
Advertising and
promotion 16000 16000 16000
Administrative salaries 21000 21000 21000
Total 58000 58000 58000
6. Preparation of balance sheet
Particulars Notes Amount
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Assets
Non-current asset
Building 307500
Equipment 175000
Total non-current asset 482500
Current assets
Cash 929980
Accounts receivables 621000
Inventory 425845
Total current assets 1976825
Total assets 2459325
Equity and Liabilities
Liabilities
Non-current liabilities
Long term borrowing 300000
Interest payable 5000
Total non-current liabilities 305000
Current liabilities
Accounts payable 386400
Short term credit 100000
Total current liabilities 486400
Total liabilities 791400
Equity
Share capital 361400
Retained earning 1 342420
Miscellaneous Provisions 964105
Total equity 1667925
Total Equity and liabilities 2459325
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7. Explaining the purpose of budgeting
Budgeting is one of the concepts in an entity which is used in evaluating the existing
business performance. The budget is prepared to assess existing business efficiency in relation
with standard facts and figures set by an entity. There are various purposes of preparation of
budget in the organization which are given as below:
Forecasting- Future facts and figures are estimated on the basis of existing results in
order to ensure its skills and capabilities (Guenther, 2015). The business performance is analyzed
on the basis of current situations. The financial and non-financial aspects are forecasted. The
sales is forecasted which is a financial aspect that is dependent on non-financial aspects. The
dependence of sales is on higher level of customer satisfaction.
Decision making- It is an important tool used in making decisions related to business of
Pele which emphasizes on the current skills and capabilities of an entity. Standard figures are
estimated in order to analyses the current strengths and weaknesses of business.
8. Importance of cash budget and improvement in the cash position
Cash budget is prepared in an entity to identify the cash flow and its movement by
increasing cash inflow by reducing cash expenses incurred by an owner of enterprise (Kaplan
and Atkinson, 2015). There are different points which assist the top management of Pele to
determine importance of cash flow statements in the firm which are mentioned as follows:
 It assesses the current cash position in order to maintain higher level of liquidity in
business enterprise.
 The decisions are simplified in relation with holding of cash for long time in the business.
 The cash expenses are monitored properly in order to reduce them from incurring in the
business. It will be banned by emphasizing on incomes generated from variety of sources.
 The availability of cash is essential for business which helps in improving existing
condition of firm in order to pay off all its cash obligations. Cash balance can be created
by generating higher or lower amount of cash held in the same entity.
 The higher generation of cash is not good for an entity which will be reduced by
investing in different bonds and in businesses. The lower cash balance will be rectified by
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improving the sources from which cash can be generated in the near future and also, by
reducing all kinds of expenses.
9. Interaction of human behavior with budgeting process
The preparation of a budget in organization is a collective effort of all personnel who
assist the top management in making of various kinds of budgets (Zheng and Alver, 2015). There
are various things which affect human behavior in the overall budgeting process which is given
as below:
The budget committee is formed in an enterprise which helps in framing good opinions
related to existing business. The preparation of different budgets such as master budget is only
possible with the help and efforts of employees working in the firm. The efforts of entire
personnel in this organization will help in assessing the feasibility of current business enterprise.
CONCLUSION
It can be concluded from the above project report that budgets are prepared such as sales
and cash budget in order to forecast the future capabilities. The results are in favor of enterprise,
Pele whose existing efficiency is assessed. The budgets are explained here with the help of
several theories.
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REFERENCES
Books and Journals
Kaplan, R. S. and Atkinson, A. A., 2015.Advanced management accounting. PHI Learning.
Senftlechner, D. and Hiebl, M. R., 2015. Management accounting and management control in
family businesses: past accomplishments and future opportunities. Journal of Accounting
& Organizational Change. 11(4). pp.573-606.
Zheng, X. and Alver, J., 2015. An Exploratory Study of Governmental Management Accounting
in China. Journal of Applied Management and Investments. 4(2). pp.102-110.
Guenther, E. and et.al., 2015. Material Flow Cost Accounting–looking back and ahead. Journal
of Cleaner Production. 108. pp.1249-1254.
Dekker, H. C., Ding, R. and Groot, T., 2016. Collaborative Performance Management in
Interfirm Relationships. Journal of Management Accounting Research.
Schaltegger, S. and Zvezdov, D., 2015. Expanding material flow cost accounting. Framework,
review and potentials. Journal of Cleaner Production. 108. pp.1333-1341.
Sokolov, A. Y. and Giniatullin, Y. M., 2015. Management Accounting and Costs Controlling in
Oil Producing Companies: Historical Perspectives.Mediterranean Journal of Social
Sciences. 6(1 S3). p.430.
Shil, N. C., Hoque, M. and Akter, M., 2015. Researching the level of diffusion of selective
management accounting techniques by Bangladeshi firms.Journal of Accounting and
Management Information Systems. 14(4). pp.704-731.
Online
Budget process and Human Behavior. 2015 [Online]. Available through:
<http://www.ideabeyond.net/budget-process-and-human-behavior/> [Accessed on 30th
December, 2016].
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