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Difference Between Management and Financial Accounting

University: REGENT COLLEGE LONDON

  • Unit No: 5
  • Level: High school
  • Pages: 19 / Words 4838
  • Paper Type: Assignment
  • Course Code: N/A
  • Downloads: 51
Question :

 This assessment will cover certain questions which are like:

  • What is management and what are the different methods of accounting in Alpha Ltd.
  • What are the tools and techniques for financial reporting
  • Give the advantages and disadvantages of forecasting.
Answer :
Organization Selected : Alpha Ltd

INTRODUCTION

Management accounting is the calculation of all accounts which are used to maintain the profits by making decisions. In business environment there are different types of business who manages many information to run their business. It is important for business industry to manage business information and make right business decisions. In other words, management accounting is the provision of accounting data which are managed by managers by analysing the business performance (Maas, Schaltegger and Crutzen, 2016). All accounts and information are managed by accountant who have special knowledge to verify the accounts and run business activities effectively. The main aim of applying management accounting is to control all financial information in order to accomplish business goals.

For better understanding the concept of management accounting Alpha Ltd. Has been selected which is a manufacturing company produce different types of products. This manage all information with the help of management accounting that processes to accomplishment of business goals. This report covers different topics such as difference between management and financial accounting, types of management reports and their integration which helps to get the business objectives. Moreover, this report covers planning tools and financial problems that can be solved by using proper management accounting system (Chiarini and Vagnoni, 2015).

Task 1

P1 Management Accounting and Its Requirement

Management accounting consider as important practices of business organisation that identify, analyse, measure and interpret the accounting information in order to run a business successfully. To maintain all accounting data accurately is not possible for a business concern so, management accounting is a attractive process which can be used top control the data and increase business performance. This is required at every organisation whether small, medium and large size enterprise which helps to maintain the all accounts clear and increase organisational productivity and profitability. Such as the manager of Alpha Ltd. Which is a manufacturing company, manage all accounting and financial information appropriately which helps to maintain the high profits. All accounts are analysed by accountant who keep records of them and make a profitable record with the help of accounting principles (Dekker, 2016).

Management Accounting is Different from Financial Accounting, That are as Explained:

Basis

Management accounting

Financial accounting

Meaning

The relation of management accounting is with internal activities of business organisation that provides information to manage by planning, organising, directing and controlling the information (Richardson, 2015).

The relation of financial accounting is with external activities and performance of business organisation that is important to present to shareholders, customers, creditors and external parties who have interest in company.

Time focus

This mainly affect the decisions which is depend on future of business industry.

In this management mainly focus on past activities which helps to take further actions.

Concentrate

The concentration of management accounting is on different segment of business industry where many informational are collected.

In this managers mainly focuses on whole organisational performance.

Principle followed

There is no principles and management rules are required to follow while preparing accounts.

Herein, need to follow GAAP principles which helps to perform the financial accounting effectively.

 

Types of Management Accounting System

Cost Accounting System

This is related with cost of the products and services for the purpose of profitability analysis. In other words, cost accounting system is used to estimate the cost of products and services which are important to perform business activities (Kastberg and Siverbo, 2016). This is required in business organisation as it help to analyse the cost of products which are manufactured by an organisation. It is important for business firm to know which product is profitable or which not, which is only possible through estimating the cost of products and services which are providing by business organisation. In context to Alpha Ltd, managers are required to use cost accounting system to estimate the cost of their manufacturing products which helps to know the profits on such production (Anzeh and Abed, 2015).

Inventory Management System

Such system is highly related with managing the inventory and keeping proper records of inventory level. This system is required to monitoring and maintains the records of stoked goods which have collected by business organisation. It helps to perform the business activities accurately by managing all inventories (Askarany, 2015). The inventory can be in the form of raw material, finished goods and other stock material which helps to maintain the profitability. This system contain various approaches to manage the inventory such as Just in time, periodic inventory and perpetual stock inventory. In context Alpha Ltd this system is require to manage and track the inventory which helps to create profits accurately (Mitchell 2017).

Job Costing System

This system is related to identifying the expenditure in to each job which are classified in to various business activities. The requirement of this system in large portfolio in which wider range of products are produced and prepared (Walker, 2016). It helps to divide the larger business activities in to small and get profits accordingly. In regards of Alpha Ltd managers are required job costing system in order to classify or allocate the cost in to various activities which helps to operate a business efficiently.

M1 Benefits of Management Accounting System and Its Uses

Benefits of Above Discussed MAS

Cost accounting system

It is beneficial for all business entity as it helps to estimate the cost of products and services which are provided by organisation. This reduce the cost of products while manufacturing the products. Alpha Ltd take benefit of cost accounting system by reducing the operating cost which states high profits.

Inventory management system

This is advantageous for business firm as it aid to track the raw material and finished goods on time. By applying this system Alpha Ltd can track its inventory or finished good which helps to learn profits by minimising the storage cost.

Job costing system

The benefits of this system are related with organisational process which provides information about several business activities. Alpha Ltd uses this system and get benefits of allocating the cost in to different activities which make easy operation and management (Brief, 2018).

 

P2 Kinds of Managerial Reports

Managerial reports are crucial information for business organisation that helps to perform a business appropriately. A business organisation have complete and clear picture of business that states how a business need to perform. Management report are the part of business organisation that helps to understand how a business can earn higher profits by considering finance and management activities. Alpha Ltd is a manufacturing organisation whose manager focus on management accounting and prepare different types of management accounting reports that are described below:

Budget Report

This report is consider as internal report which are used by an accountant and manager to compare the actual and budgeted results in order to make profits. This report states the difference between actual and budgeted results which helps to maintain the higher profits (Van der Stede, 2015). This also define that monetary resources which are available in organisation are utilised by organisation or not. In regards of Alpha Ltd. Budget report is prepared by managers who evaluate the business activities by allocating the funds in to different activities which helps to maintain the profits.

Performance Report

This report is reflect the performance of a business organisation by keeping record of accounting transaction and information. Every company wants to see its good performance by managing accounts so this report is prepared by managers in order to maintain performance. This report is used by business firm to give the bonus and incentives to their employees and retain them for long period. In Alpha Ltd manager prepare this report to motivate their employees who are performing well and maintaining high profits.

Inventory Management Report

This means a report which is used to keep records of all available inventories is considered as inventory management report. This report helps to maintain the proper information if stock and place order according for new material. Manager of Alpha Ltd are preparing inventory management rep[ort which helps to keep record of all inventory and place order according which leads to high production and profits. This is mainly used in manufacturing company where number of products is produced and need to manage properly then this system is used by organisation to operate business successfully (Correa and Larrinaga, 2015).

Accounting Receivable Report

This report is used to know about credit which provide by a business concern to its customers at the time of purchasing products and services. It is important for business organisation to maintain the records of its unpaid customers who have purchased goods at credit and promise to pay at a specified date which helps receive the paym3ent on time. Managers of Alpha Ltd prepare Account receivable aging report which helps to keep records of all unpaid customers and receive payment on time which helps to run a business successfully (Kister, 2015).

D1 Integration of Management Accounting System and Reporting

Different types of management accounting system uses by business organisation and prepare accounting reports which helps to increases the organisational process. Accounting system and management reports are integrated within organisational process such as inventory management system is used to track the inventory properly which helps to prepare inventory management report that states how much stock are available in warehouse. Costing accounting system is used by business firm to calculate the accurate cost of product which they have manufacture that built cost report which are connected with organisational process. Business organisation should utilise system and reports properly which helps to manage all functions accurately and increase productivity as well as profits (Englund and Gerdin, 2018).

Task 2

P3 Calculation of Cost By Using Appropriate Technique

Section (A)

Absorption Costing Method

This method is used by business organisation in order to calculate profits by absorbing all cost of business. This consider fixed and variable cost while preparing the income statement which helps to states the profits.

Marginal Costing Method

It is also calculated in costing method which is used to know the profits by considering variable cost as product cost. This helps to increase the productivity of organisation as manager evaluate all activities and uses this method to know the profits (Rumens, 2016).

M2 Apply of Range of Management Accounting Technique

Management accounting techniques are those technique which can be used to calculate the profits by involving all information. This states that which technique is appropriate for business organisation in order to gain profits. Such as receptive company apply marginal costing and absorption costing technique which helps to prepare appropriate financial report in order to make higher profits. All techniques are analysed by managers of business entity which helps to defined how an organisation can get profits by using relevant and appropriate technique which processes to higher productivity (Al-Mawali, 2015).

D2 Financial Reports That Apply and Interpret Data

Financial reports are consider as core document of any business which states that how much organisation is earning profits. If financial reports are not appropriate then organisation has option to change the system and technique to prepare financial statement. This report is prepare by all organisation to know all income and expenditure which are done by managers in order to run a business successfully (Adler, 2018). This has been defined as managers should use appropriate technique and method to prepare the financial report that helps to define the organisational productivity and profitability. Organisational mainly focus on financial report by managing all business and control the financial information in case of excess. Therefore, accurately application of financial report is important for business firm which helps to define the organisational profits (Lew, Pacana and Kulpa, 2017).

Task 3

P4 Advantages and Disadvantages of Different Types of Planning Tools

Zero Base Budgeting

This budget is prepared by organisation in new financial year that does not involves ant past information which helps to run a business. This budget starts with zero that means it has no base year, which helps to know the current year profits. The manager of Alpha Ltd can prepare zero base budget in order to know the current year profits or cost by maintaining the cost (El-Shishini, 2017).

Advantages:

This budget helps Alpha Ltd to allocate the budget and resources properly that helps to maintain the profits. It is flexible which can be modified during the year. Accurate information can get by preparing this budget which also provide better communication and coordination with department.

Disadvantages:

To prepare this budget there is require to have high man power turnover or number of employees. It is high time intensive budget because it become difficult for organisation to prepare this budget. Here is lack of experience which may be difficult for Alpha Ltd's manager to prepare zero budget. As no base is available there is possibility of resource intensiveness and easy to manipulate by savvy managers and biased towards short term planning for organisation (Anderson, 2015).

Cash Budget

This budget is used to keep records of cash transaction by preparing cash flows that helps to make profits accordingly. Alpha Ltd can prepare cash budget after knowing the cash transaction and make higher profits with the help of cash budget (Chiapello, 2017).

Advantages:

Preparation of cash budget by Alpha Ltd will enhance its economic conditions and regular fluctuations in sales and which helps to make profits. This is influencing budget which is used to gain the higher profit by preparing cash budget.

Disadvantages:

Such budges only gives estimations of cash profits and do not provide correct requirements for cash. This is time consuming and risk taking budget that can reduce the profit margin (Zambon and Girella, 2016).

Master Budget

This is superior budget of all that prepares for all the departments of organisation. This consider as one year planning document used as a device for the administration to identify goals in advances and arranging resources to achieve them.

Advantages:

This helps to provide information about a company organization's income and expenditure. The summary of the organizations ' goals and objectives is defined through the master plan.

Disadvantages:

A budget is prepared for the company as a whole andm no detailed information is provided about a department Reading and updating on a regular basis is very difficult.

M3 Uses of Different Planning Tools and Its Application

From the above discussed planning tools it has analysed that organisation should use planning tool in their organisation which helps to make future profits. By applying planning tool in business firm manager can identify the needs of organisation and set a forecast budget by evaluating all information that helps to make the future plans effectively and increase business profits. For instance, Alpha Ltd apply planning tools in order to deal with money related problems which helps to resolve such issues and increases production level. This is important for organisation to focus on future of any organisation by setting the future goals which helps to maintain the higher profits resulting good achievements.

Task 4

P5 Comparison of Usage of Management Accounting Systems Which are Used By Companies For The Purpose of Responding Financial Problems

All the complications which are faced by business entities to overcome the issues which are taking place due to lack of finance and funds for operational activities. Alpha Ltd is a medium sized pizza manufacturing company operating business in United Kingdom is facing some financial challenges. All of them are as follows:

Unnecessary Expenses

All the expenditures which are not related with the operational activities but faced by the company are known as such expenses. These are also taking place in Alpha Limited and managers have to use funds to overcome them so that they can carry out the operations systematically. It creates problem of lower finance for future objectives.

Improper Organisation of Bookkeeping

When amount of transactions are not recorded in the book properly then it results in finance related problems for businesses. Alpha Limited also faces this issue which affects the effectiveness of operational activities because the management will not have sufficient funds to perform them.

Both the above described problems are required to be identified and dealt properly and for these purpose managers in Alpha Limited are using different tools and techniques. The methods used for identification are as follows:

Benchmarking

It is a strategy which is used by organisations to compare their policies with others so that effect8ive changes in the organisational strategies could be made. It also helps to achieve competitive advantage by guiding companies to be effective as compare to others which are operating business in same sector (Jinadu, Agbeyangi and Mamidu, 2015). In order to identify the problem of improper organisation of bookkeeping it is used in Alpha Ltd. It helps the management to compare its accounting records with other entities in order to find the errors which are made by them. It will guide them to make proper changes in the accounting policies and reduce the possibility of financial challenges which are affecting Alpha Limited.

Key Performance Indicators

These are performance measurement tools which are utilised by organisations to determine that the efforts which are made by them to attain success are resulting positively or negatively. There are two main types of KPIs which could be used by entities to analyse success or failure of business projects (Endenich, Trapp. and Brandau, 2017). These are financial and non financial KPIs. Description of both of them is as follows:

  • Financial KPI: This type of KPI is mainly used by business entities to figure out the such expenses or cost which may take place suddenly and not necessary to face. With the help of it chances of finance related issues could be decreased.
  • Non financial KPI: All the key performance indicators which are used by organisations to find errors in non financial activities such as supply chain, distribution channel etc. It helps to make sure that all the operational activities should be performed in systematic manner to reach long term business goals.

From both the above described KPIs, managers in Alpha Limited are using financial KPIs to identify the problem of unnecessary expenses because it helps to find the expenditures which may take place in future suddenly. If these are estimated by the management in advance then it will be beneficial for formulation of strategy to deal with them appropriately.

For the purpose of dealing with both the above identified problems financial governance is used in Alpha Limited. Description of it is as follows:

Financial Governance

It is a technique which guides companies to formulate all the accounting records according to financial principles and perform business operations in legal way. It is used in Alpha Ltd by the management to deal with finance related problems which are faced by it. It helps to generate accurate final accounts that reduces the possibility of improper organisation of bookkeeping because by using it all the records will be formed according to appropriate principles. It also help to deal with financial challenge of unnecessary expenses because it helps managers to keep the reports in accurate format so that they can keep budget for such expenses which may take place suddenly in future.

Comparison of The Way in Which Management Accounting Systems are Used to Deal With Financial Challenges:

Management accounting system

Alpha Ltd

Pizza Express

Cost accounting system

Managers within the company are using it to deal with unnecessary expenses because it helps to keep track record of all the costs which are related to business activities so that they can determine the expenses which are no necessary.

For the purpose of dealing with problem of unplanned expenses this system is used by managers so that they can be prepare to respond the costs which are taking place suddenly.

Job order costing

This system is used to deal with the financial challenge of improper bookkeeping because it can help the managers to keep the records appropriate according to different jobs that are performed by the company.

In order to unmanaged information of business activities this system is used by managers in the organisation. It helps them to keep track record of all the activities and their costs so that funds could be allocated accordingly.

 

M4 Analysing The Way in Which Management Accounting Can Lead Organisations To Sustainable Success

In Alpha Limited different techniques of management accounting are used for the purpose of identifying and dealing with financial challenges such as unnecessary expenses and improper bookkeeping. The techniques which are utilised by them are KPI, benchmarking and financial governance. With the help of all these methods finance related issues could be analysed and responded properly by making effective strategies. KPI helps to identify the finance related problems such as unnecessary expenses. With the help of benchmarking the issue of improper financial records could be identified. Financial governance guide to formulate all the records according to accounting principles and perform all the operations under law so that possibility of finance related issues could be reduced (Sokolov and Bikmukhametova, 2016).

Also read: Managing Workforce Engagement and Commitment

D3 Evaluation of Use of Planning Tools Ton Respond All The Financial Problems Which Are Faced By Organisations

Planning tools are used by business firm to identify problems and responds on them properly which helps to attain the organisational objectives. It helps to set a budget appropriately and control over a budget which increases organisational productivity and profitability. Alpha Ltd's management are using different types of planning tool such as zero base budget, cash budget and master budget which helps to set the the financial plan appropriately which leads to sustainable organisation success. Cash budget helps to keep records of all cash item, master budget is used to keep records of all transactions and zero base budget is used in new business activities which helps to solve the financial problems that are facing by respective company in their manufacturing and operation process. Get more details about assignment help UK from our experts.

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