Fundamentals of Management Accounting - Zylla

TASK 1: Understanding of management accounting systems.

P1 Management accounting and essential requirements of various types of management accounting system

Management accounting refers to the procedure of identifying, measuring, interpreting, communicating financial data or information in the achievement of the business goals and objectives. It is also referred to us a cost accounting, the major difference between management accounting and financial accounting is that information of management accounting helps managers in a company to make effective decisions, on the other hand financial accounting is aimed at providing data or information to the external parties of a company or organization. The process of preparing management reports or accounts provides accurate and timely financial as well as statistical information required by managers in establishing day to day decisions. It consists reports that are developed in order to meet the needs of the management. Management accounting systems differs in their applications, each and every system is designed for providing different managerial information on the basis of management needs which helps in making decisions. There are various kinds of managing accounting systems which are applied in an organisation. However, all types of accounting systems help in achieving a common objective and assist in analysing, identifying and communicating financial data in an organisation. The different types of accounting systems are described as below -

• Cost accounting system – The cost accounting system is a framework applied by an organisation to analyse the cost of its products to analyse profit, cost control and inventory valuation. Cost accounting is known as the most essential concept in management accounting as it provides the analytical tools like marginal costing, budgetary-control, operating costing, standard costing and inventory control.
• Inventory management – Inventory management refers to the technique of overseeing and controlling the use, ordering and storage of elements which are applied by an organisation in the production of the goods it offers. There are many functions of inventory management such as developing purchase order, receiving, adjusting, reallocating and disposing inventory. This management accounting system assist an organisation to improve company workflow and enhance inventory accuracy (Fullerton, Kennedy and Widener, 2017).
• Job costing system – The job costing system refers to the system of allocating production costs to the individual batches or item of goods. The job costing system needs accumulating three types of direct information such as labour overhead and direct material.
• Price optimisation system – It refers to the application of statistical analysis to the organisation or business in order to determine consumer reaction on different price for their products and services.
• Utilisation of data – Management accounting information provides data impelled look at how to develop an effective organisation. The accounting data or information helps in calculating day to day expenses such as operating cost, hence collecting, measuring and analysing this data is essential.
• Variable costing – As per the Generally accepted accounting principles, every single cost of manufacturing products should be mentioned and recorded in the books of account in an organisation. It assists in identifying the variable cost of production or operation which is very essential to be determined n order to maintain an effective flow of finance or money ion a company (Renz and Herman, 2017).

P2 Different methods applied for management accounting reporting

Management accounting is very much essential in order to have a look into concept that there are many operations which organization need to precede as per the budget and actual expenditure which business is having. Management accounting focuses on internal data and information received through financial accounting. Management accounting is applied for planning, controlling and making decisions. Managerial accountants depends upon financial statements consisting income statement, balance sheet and cash flow statement. The various methods applied for reporting management accounting can be described as below -

1. 1. Budgets – One of the major component of management accounting is preparing budgets, Budgets are created by applying budgets of previous year and adjusting them to forecast future. The budgets of an organisation includes all the revenues sources and expenses, the company tries to achieve its goals and objectives staying within the budgeted amount.
2. 2. Cost reports – Management accounting analyse or calculate the cost of products produced. It is done by adding all the costs, raw product overhead, labour and extra cost in consideration. The sum is then divided into amounts of products manufactured. All the information or data is compacted in the cost report. This report allows managers to identify and view the cost value of goods with respect to their selling price. It also helps managers to plan and control profit margin.
3. 3. Performance report – Management accountants apply budgets to compare expenses and actual revenues to the budgeted amounts. The differences identified are analysed and evaluated when shaping or designing new budgets and all data concerned to amounts is listed within the performance report. These reports are computed every year, but some organisations developed them monthly or quarterly. This report helps managers to plan for the upcoming demand s in cost increment and production (Schaltegger and Burritt, 2016).

Accounts receivable ageing report – There are huge number of debtors of an organization like the customers or clients who are yet to pay money to a company or business. It can be delay in payment or any other issue which becomes a barrier I payment of a product, services or an order

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