Management Accounting: Principles, Reporting Methods, and Tools

This report provides a detailed analysis of management accounting, covering its principles, importance, reporting techniques and methods, and the advantages and disadvantages of budgetary tools. It begins by outlining core principles such as management by exception, unbiased data presentation, stability and consistency, and forecasting. The report emphasizes the importance of management accounting in relevant cost analysis, audience targeting, make-or-buy evaluations, and budgeting. Various techniques for management accounting reporting, including margin analysis, capital budgeting, overhead allocation, trend analysis, and constraint analysis, are discussed. Methods such as inventory reports, cost reports, budget reports, and accounts receivable aging reports are also examined. The report further evaluates cash budgets, zero-based budgeting, and activity-based budgeting, highlighting their respective advantages and disadvantages. Finally, it explores the adoption of management accounting systems by organizations like Unilever and Tesco, detailing how these systems address financial problems and improve operational efficiency.

Unit 5 Assessment

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Principles of Management Accounting.......................................................................................3
Importance of Management Accounting.....................................................................................4
Techniques for Management Accounting Reporting...................................................................4
Methods of Management Accounting Reporting........................................................................5
Advantages and disadvantages of budgetary tools......................................................................6
Adoption of the management system by the organizations.........................................................8
CONCLUSION................................................................................................................................9
REFERENCES................................................................................................................................1

INTRODUCTION
Management Accounting is a process of analysing, interpreting, calculating, finding &
communicating the information related to finance of the organization. It differs in every
organization as they use various types of policies and procedures to make the report. It helps the
managers to take proper decision regarding the business.
This report will discuss various principles of management accounting & its importance
for the organization. Further it will disclose the techniques and methods which are used in
reporting of management accounting. It discusses the advantages & disadvantages of budgetary
tools and comparison of organizations using different management systems and problems it
creates.
MAIN BODY
Principles of Management Accounting
 Management by Exception - This is followed when the information is presented to the
management, which implies that techniques of standard costing & system of budgetary
control are accompanied in the management accounting system. In this principle for
identifying the deviations actual performance is compared with performance which is
pre-determined (Zahid, and Vagif, 2020).
 Present Unbiased Actual Data - The information as well as reports should be accurate
& objective. This information & report should not be based on a person’s desires &
dissatisfactions while it should also not be based on the preferences of the other person.
 Stability & consistency - The Procedures as well as policies should be consistent as well
as stable. As it will ensure that any person can understand the accounts easily. As if it
frequently changes then it will affect the decision-making & planning ability of the
management.
 Forecasting & Detection of the Problems - It can be considered an important principle
as it will help the organization to identify the problems faced by them. Also, it will help
to analyse all the future problem which might occur. It will help the management to take
steps which will reduce or prevent the problems. For example, if there is a chance of

inflation in the future then it will help the management to take steps to reduce cost of
manufacturing or setting the prices such that both consumers and organization can be
benefited (Abednazari, and et.al., 2018).
Importance of Management Accounting
 Relevant Cost Analysis - It helps the management to identify expenses which will occur
in future as well as provide suggestion for those activities. It is analysed by conducting
cost analysis with the help of management accountant. In this all the possibilities to
increase profit are explored (Urakova, 2020).
 Audience Targeting - In this management accountant analyse those groups of customers
who generate more profit for the business. As this is very important for the marketing
department to know which segment of customer generate more profit for the company.
For example, the accountant will analyse the sales of the fairness cream organization and
can get the answers that either male or female generate more profit for the company.
 Make or Buy Evaluations - In this management accounting is important as it will help
the management to solve their main problem. The main problem is to produce the product
or purchase the product from another party. In this accounting will compute the cost
required in each of the alternatives and management can make the decisions regarding the
same.
 Budgeting - Budgeting is done by analysing previous sales of the company. This helps
various department as accountant prepares the budget. For example, for manufacturing a
fairness cream how much amount of raw material will be required to get desired output.
Techniques for Management Accounting Reporting
 Margin Analysis - The focus of this is to increase the benefits concerned with optimizing
productions. It is one of the important techniques in managerial accounting. It calculates
the break even point of the products manufactured by the company so that it can analyse
the price of the product.
 Capital Budgeting - It is concerned with the decision-making regarding capital

expenditures by analysing the information required for the same. For example, it uses
payback period of the amount invested in a project to know the viability of the project.
 Calculation and allocation of overhead - It is concerned with analysing and
identification of the actual cost connected with products and inventory of the company.
The process implies the amount of charges which will be calculated and allocated to the
overhead. For example, amount of administration overhead will be allocated to a product.
 Trend Analysis and Forecasting - The concern of this technique is to identify pattern as
well as trends of the cost related to the product. It also recognizes variances which are
unusual from those values which are forecasted and reasons associated with the same.
 Constraint Analysis - As the analysis of production line is done of a business it helps to
identify principal bottlenecks. Also, the inefficiencies which are associated with these
bottleneck also the impact of these on generating profits.
Methods of Management Accounting Reporting
 Inventory report - It is the abstract of company stock in hand, this is shown in amount
of stock the business have. This also informs the company about the fastest selling
product and the performance of the category of product involved. It is important for the
business because it oversees the most expensive assets of organization (Kharlamova, and
et.al., 2020).
 Cost report - This report is utilized to communicate to the organization the cost which
will be incurred in the products. This can be informed in various ways such as absolute or
variance form when compared to the budget of the project. For example, it informs the
organization about the cost required for material or labour.
 Budget report - It is a type of internal report which is prepared for the management for
comparing the actual performance of the organization with the estimated projections. The
purpose of the report is to understand the amount of difference in the actual performance
and estimated so that the loophole can be analysed (Căpușneanu, and et.al., 2020).
 Accounts receivable aging report - In these receivables are sorted by their due date so
that estimation of the bad debts can be done. It is required only when the business deals
the goods & services on later payment to the clients. This helps the business to

accumulate the credit from the customers which will reduce the number of bad debts.
Advantages and disadvantages of budgetary tools
There are various types of advantages and disadvantages of the different budgetary tools
that can affect the accounting system and management of the organizations (Maheshwari,
Maheshwari and Maheshwari, 2021).
Cash budget
The cash budget tool is one of the important tools that is used for the successful
management of the accounts in the organization. There are various advantages and disadvantages
of the cash budget (Azudin and Mansor, 2018).
Advantages
 Effective discipline- The cash budget provides the organization with the better and
effective discipline in the accountability in the management of the organization that helps
in providing the various fiscal benefits to the organization.
 Increased resources- The cash budget helps the organization in having more resources
so that the organization can have the various ways of earning and gaining funds.
Disadvantages
 Limits the spending- The cash budget has a disadvantage that it limits the organization
and makes the various reductions in the spending limits that the organization can achieve.
 Increases the danger of theft- The cash budget can create the threat in the organization
that can lead to the various types of thefts that the company can face in the future in the
relations of its financial resources and management.
Zero based budgeting
The zero based budgeting tool is used in the organization for diverting the amount of the
income and expenses to the specific program of the company.

Advantages
 Analysis of the cost benefits- The zero based budgeting tool helps the organization in
achieving the cost benefits at the end of the month so that the company can successfully
analyse the performance of the accounting process of the organization (Hiebl and Richter,
2018).
 Increased optimization in business process management- The zero based budgeting tool
helps the organizations in achieving the optimization in the business process management
in the company.
Disadvantages
 Expensive and complex- The zero based budgeting tool has a disadvantage that it is very
complex in nature and expensive to be implemented in the organization.
 Disruptive in nature- The zero based budgeting tool is very disruptive in nature and
provides the various types of the barriers to the organization in achieving the goals and
objectives of the company.
Activity based budgeting
The activity based budgeting helps the organization in recording and analysing the
various activities and actions that can lead the company in making the cost analysis.
Advantages
 Better awareness of operational costs- The activity based budgeting tool helps the
organization in understanding and being aware of the operational costs that are taking
place in the organization.
 Improved budget control- The activity based budgeting tool has an advantage that it
helps the organization in improving the budget control of the organization (Romanova,
Anisimova and Provotorov, 2018).
Disadvantages
 Consumes resources- The tool has a disadvantage that it consumes the resources of the
organization in the process.

 Short term- The tool is only a short term effective tool that can only be used for a
specific time period.
Adoption of the management system by the organizations
The management accounting system is a successful tool that is used by the various
organizations for successfully solving the financial problems that can arise in the business
of the company.
There are various organizations that are adopting the management accounting system in
their business for the successful operations of the company (de Jong and Ho, 2019).
Financial problems
There are various financial problems that the organizations face due to the poor
accounting system and ineffective management of the financial resources. The problems of theft
with the financial resources and the poor management of the financial resources of the
organization can be one of the main concerns for the organizations.
Unilever
The Unilever has adopted the management accounting system in their operations so that
the organization can overcome the problems of the ineffective management of the accounts that
can lead to the mismanagement of the operations of the company that is related to the financial
aspects of the company. The company has implemented the management accounting system so
that the organization can manage the increased demand of their products that was leading to the
ineffective management of financial resources that was completely dependent on the human
forces (Management accounting of Unilever, 2022).
The company has also implemented the budgeting process in the operations of the
organization for the understanding and analysing the long term goals of the company. The
Unilever has used this tool so that the organization can create the effective budget for its
operations and the areas where the company is required to invest its financial resources (Siziba
and Hall, 2021). This helps the organization in improving its day to day performance and

decisions that are related to the financial strategies and resources that can affect the growth of the
organization in future.
Tesco
The Tesco is one of the leading organizations of UK that uses the various types of the
management accounting system for the successful management of the financial resources and
decisions that are relating to the financial operations of the organization. The organization uses
the strategy of the budget report that helps the Tesco to overcome the problems of the excess
expenditures on the operations of the organization. The company has seen the various changes in
the expenses of the company as it has started to save the cost on the production and the raw
materials (Clarke and et.al., 2019).
The organization is also uses the strategy of analysing its financial reports and statements
that helps Tesco in understanding the various information that the organization can create and
change the strategies that is related to the financial decisions of the company related to the
operations and resources. This is done by the Tesco so that the organization can analyse the
various areas of the company that are required to be focused and invested in the form of the
monetary terms. This helps the Tesco in solving the problem of the time consumption that has
been affecting and reducing the speed of the operations of the company and the growth of the
company.
CONCLUSION
Thus, it can be concluded that the organizations can use the various types of the problems of
the company that is related to the management of the accounts in the organization. The
various budgetary tools such as the cash budget and the zero based budgeting tool can
provide the organization with the various types of the advantages and disadvantages. The
implementations of the various management accounting system that has been used by the
Tesco and Unilever such as the budget process and analysing the financial statements and
reports of the organization can help the companies in understanding the various benefits that
the system can provide in solving the financial problems of the organizations.

REFERENCES
Books and journals
Abednazari, M. and et.al., 2018. A Critical View of Global Management Accounting Principles.
International Journal of Finance & Managerial Accounting. 3(9). pp.17-27.
Azudin, A. and Mansor, N., 2018. Management accounting practices of SMEs: The impact of
organizational DNA, business potential and operational technology. Asia Pacific
Management Review. 23(3). pp.222-226.
Căpușneanu, S. and et.al., 2020. Management accounting in the digital economy: evolution and
perspectives. In Improving business performance through innovation in the digital
economy (pp. 156-176). IGI Global.
Clarke, B. and et.al., 2019. Strategic management accounting: CPA program.
de Jong, M. and Ho, A.T.K., 2019. Tools of Performance Budgeting: Applying the Lessons
Learned. In Performance Budgeting Reform (pp. 296-312). Routledge.
Hiebl, M.R. and Richter, J.F., 2018. Response rates in management accounting survey
research. Journal of Management Accounting Research. 30(2). pp.59-79.
Kharlamova, O. and et.al., 2020. Management accounting using benchmarking tools. Academy of
Accounting and Financial Studies Journal. 24(2). pp.1-7.
Maheshwari, S.N., Maheshwari, S.K. and Maheshwari, M.S.K., 2021. Principles of Management
Accounting. Sultan Chand & Sons.
Romanova, N., Anisimova, N. and Provotorov, I., 2018. Application of budgeting tools to cut
structural imbalances in regional development. In MATEC Web of Conferences (Vol. 239,
p. 08017). EDP Sciences.
Siziba, S. and Hall, J.H., 2021. The evolution of the application of capital budgeting techniques
in enterprises. Global Finance Journal. 47. p.100504.
Urakova, M., 2020. MANAGEMENT ACCOUNTING AS AN ENTERPRISE
MANAGEMENT TOOL 1Urakova M. H, 2Muxtorov A. S. ЦЕНТР НАУЧНЫХ
ПУБЛИКАЦИЙ (buxdu. uz), 1(1).
Zahid, N.A. and Vagif, L.M., 2020. ROLE OF MANAGEMENT ACCOUNTING IN THE
ORGANIZATION. Economic and Social Development: Book of Proceedings. 3. pp.367-
372.
Online
Management accounting of Unilever. 2022. [Online] Available through: <
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