Management accounting refers to analysing, summarising and recording the business operational transactions for the internal entity use in order to ascertain the efficiency and productivity. Management accounting is also known as managerial accounting and cost accounting. Moreover, it is the process of analysing the business costs and operational transactions for preparing internal financial report, records and for decision making and for the accomplishment of desired objectives(De Harlez and Malagueno, 2016). Overall the management accounting engages with the preparation of financial and costs data and converting the data into an understandable format or in useful information for the management and top level authority of the organisation.
This report pertains the knowledge about the management accounting its objectives and techniques of management accounting, also it pertains the comparison of two entities in context of management accounting tools and their use in solving the financial issues etc. these all contexts are examined with the illustrative example of Jupiter PLC for the better understanding of the management accounting and systems.
Explanation regarding management accounting, its importance and management accounting systems
Management accounting is that branch of accounting that is engaged in the preparation of managerial or business operations reports. It means the management accounting pertain the knowledge process of preparing and maintaining the statistical and financial reports of the business operational transactions and mainly engages in the costing of the business operational transactions. Under the management accounting, several techniques are involved for the purpose of proper analysing, summarising and ascertaining the effectiveness and the efficiency of the business transactions and also for the purpose of preparing the managerial or business performance record in appropriate form of informational report, which is to be communicable for with the business heads and other users(Watts and McNair-Connolly, 2012). Mainly the management accounting report provides information regarding the product, plant, operational projects. There are different methodology used under the process of management accounting such as Inventory management, cost accounting, Job costing system and price optimising system etc. used by the business entities like Jupiter PLC for the proper analysation and ascertainment of these managerial operations in appropriate useful format or report.
There are some objectives of the management accounting system are as follows.
- Beneficial in proper planning and formulation of future policies.
- Facilitates better interpretation of the financial information.
- Ensuring effective controls over the performance.
- Helpful in better coordination.
- Facilitates effective motivation to employees.
- Acts as the solution of the strategic business problems.
- Ensuring the evaluation of effectiveness and efficiency of business policies.
Explanation about the methodology and reporting of the management accounting
The managerial accounting pertain the tasks such as planning, controlling and decision making, these tasks are performed on the basis of the managerial reports prepared by using the management accounting techniques and planning tools. These techniques and tools are used by the organisation like Jupiter PLC in order to proper categorized the business transaction and costs and revenues occurs from the operations of the business. These all relevant business information are recorded in several books of managerial reports for the proper evaluation. Some of the managerial books or reports are as follows.
Cost Reports: The cost reports are used to record all the relevant costs incurred in operating the business activities. Such as in production various costs are incurred by the business like labour, fuel, raw materials etc. these costs are record, classified and analyse in costs reports according to their nature that is fixed or variable(Suomala and Lyly-Yrjänäinen, 2012)
Budget reports: Budgets are set of several costs and revenues which may be incurred or earned by the future operations of the business entity like Jupiter PLC. The budgets are prepared on the basis of past recorded data and use for estimating the future projections. Each and every business entity prepares budgets for the projects.
Execution report: The main purpose of this method is to execute the business operations which is crucial to identifying the errors existing in it. Reporting by using this method provide a strength to management to face future uncertain demand and additional expense which may occur(Welford, 2016).
Describing the advantages of the management accounting system and their applications
There are some advantages enjoys by the business entities like Jupiter PLC, by using the management accounting system. Also the applications of management accounting are described below.
Increment in abilities: No doubt the management accounting system ensures the increment in the ability of management to perform the organisation's management in performing future operations. By improving the effective and efficiency in performing operations and recording analysing and reporting of operational information in form of several managerial reports(Tiron Tudor and Mutiu, 2012)
Increase the profitability: By maintaining proper record of each business operation in form of managerial reports and by using various management accounting techniques for analysing and ascertaining the profits form the business operations helps in accomplishing the business entity's goals of profit maximisation.
Quick Decision making process: management accounting system ensures the proper maintenance of the record of business transactions. It is beneficial in making better analysis and comparison for the future operations also for making quick decisions regarding the future operations of the business.
Effective Controlling: The organisation like Jupiter PLC management accounting system maintain the proper record of the business operations and pertain the report of every transaction this ensures the effective control over the business activities by eliminating the errors and frauds. So the management accounting ensures the direct and effective control over the business operations of the entity.
Forecasting from past results: The management accounting system records and maintain the past years records of the business operations which are beneficial in quantifying and identifying the growth rate and the progress of the org