Accounting Management Simplified

Accounting Management Simplified

Accounting Management Simplified

Himadri Deshpande

Accounting Management Simplified

Himadri Deshpande

ISBN - 9789361521652

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Accounting management focuses on accounting, financial, and other types of information by managers of organizations. Managers of all organizations, whether in manufacturing, wholesale, service, e-commerce, non-profit, or government. Managers use the information to assess the relative merits of alternative courses of action for any given decision—management accounting involving generating and using this information.

Management Accounting, Information, and Decisions describe how managers make decisions. The relationship between management accounting and the other business fields is discussed, so students understand the subject within management education. Part one also deals with the generation of management accounting information used by managers and covers various cost classifications and cost systems that managers use to generate information. A common objective of this information is to indicate the effect of a decision on the organization’s profits or goals. Without a firm understanding of the costs, a manager cannot fully understand and evaluate the impact of alternative courses of action.

Management Decisions consider marketing and production decisions that are common to many organizations. In addition, it considers decisions that have long-term strategic implications and require more significant capital investments. These decisions require an understanding of management issues that are covered in other subject areas. However, students are provided with sufficient information to use management accounting information to decide real-world context. These chapters focus on making decisions that will maximize the value of the shareholder.

Management Accounting for Planning and Control recognizes that a potential conflict exists between managers’ goals and the organizations’ shareholders. To assess the performance of an organization and its managers, planning and control systems are needed to establish plans and goals and reward successful performance.

Financial Statement Analysis considers the use of financial information that is reported to external shareholders. This part does not deal with the preparation of this information but rather its use by decision-makers such as analysis, creditors, and investors.

Chapter 1. Definition and Scope of Accounting Management1

1.1 Management Accountant Job Functions 2

1.2 Management Accounting Certification|

Certified Management Accountant 3

1.3 Educational Requirements 4

1.4 Key Takeaways 4

1.5 Types of Managerial Accounting 4

1.6 Financial Leverage Metrics 6

1.7 Accounts Receivable (AR) Management 6

1.9 Budgeting, Trend Analysis, and Forecasting 6

1.10 Scope Of Accounting Management 7

1.11 Summary 9

1.12 Exercise 9

References 9

Chapter 2. Practice And Application10

2.1 Practice10

2.2 9 Ways To Consider The Practicing Of

Account Management11

2.3 The Association of International Certified Professional Accountants (AICPA) 13

2.4 Key Takeaways 14

2.5 The practice areas 16

2.6 Applications On Accounting Management 16

2.7 Task 1: Demonstration of understanding of management accounting system 17

2.8 Explanation of management accounting 18

2.9 Different types of Management Accounting and its requirements 18

2.10 Different forms of Management accounting reports 18

2.11 Task 2: Explanation of planning tools used in management accounting 20

2.12 Advantage of difsferent types of planning tools 20

2.13 Disadvantages of different types of planning tools 20

2.14 Task 4: Comparison of ways that management accounting of an organization use to respond the financial problems 21

2.15 Summary 22

2.16 Exercise 22

References 23

Figure Source 23

Chapter 3. Financial Versus Management Accounting24

3.1 The differences between financial and managerial accounting 24

3.2 What is managerial accounting? 25

3.3 What is financial accounting? 25

3.4 Key Takeaways 27

3.5 How managerial and financial accounting are similar 28

3.7 Summary 30

3.8 Exercise 30

References 31

Chapter 4. Traditional Versus Innovative Ideas32

4.1 Introduction 32

4.2. Problem statement Management accounting 34

4.3 Research Questions 35

4.4 Objectives of the study 35

4.5 Significance of the study 35

4.6 Literature Review 35

4.6.1 Costing Practices 36

4.7 Problems On Traditional Accounting Management 37

4.8 Summary 39

4.9 Exercise 39

References 40

Figure Resource 40

Chapter 5. Role Within A Corporation41

5.1 The Role of Accounting 41

5.2 Internal Management Accounting 42

5.3 Accounting Data for Decision-Making 43

5.4 Accounting for Government Regulations 43

5.5 Accounting for Planning 43

5.6 Ratio Analysis Based on Financial Data 44

5.7 What-If Strategies 44

5.8 Financial Accounting for External Users 45

5.9 Project Planning 45

5.10 Income Management 46

5.11 Differences in Accounting and Financial Reporting 47

5.12 GAAP 47

5.14 Management Accounting 47

5.15 Financial Accounting 48

5.16 Summary 49

5.19 Exercise 50

References 50

Figure Resource 51

Chapter 6. Role Within A Corporation52

6.1 Introduction 52

6.2 Activity-based costing and management 53

6.3 Key points about activity-based costing 55

6.4 Key Takeaways 56

6.5 Example 56

6.6 Grenzplankostenrechnung 57

6.7 Lean accounting 59

6.8 Resource Accounting Management 61

6.9 The Three Pillars of RCA 61

6.10 Capacity Management 62

6.11 Throughput Accounting 62

6.11 Transfer Picking 64

6.12 Completing the Transaction 65

6.13 Summary 65

6.14 Exercise 66

References 66

Chapter 7. Resources And Continue Reading67

7.1 Introduction 67

7.2 Purpose 67

7.3 What Is RAB 68

7.4 In terms of the scope of RAB, it covers 68

7.5 What Is Resource Accounting and Who Determines the Standards: 70

7.6 Background 72

7.7 Concepts of Resource Consumption Accounting 73

7.8 The Core Elements of RCA 73

7.9 Continue Reading 74

7.10 Exercise 75

References 75

Chapter 8. Tasks And Services Provided Rate And Volume Analysis76

8.1 Introduction 76

8.2 The main functions of management accounting 76

8.3 Key Takeaways 77

8.4 Bussiness Metrics Development 79

8.5 Price Modelling 82

8.6 Product Profitability 88

8.7 Sales Management Score Cards 103

8.8 Cost Analysis 105

8.9 Cost-Benefit Analysis 109

8.10 Life Cycle Cost Analysis 111

8.11 Client Profitability Analysis 115

8.12 IT Cost Transparency 120

8.13 Capital Budgeting 121

8.14 Buy Vs. Lease Analysis 124

8.16 Strategic Planning 127

8.17 Strategic Management Advice 129

8.18 Internal Financial Presentation And Communication 131

8.19 Sales Forecasting 134

8.20 Financial Forecasting 140

8.20 Annual Budgeting 144

8.21 Cost Allocation 146

8.22 Summary 150

8.23 Exercise 151

References 151

Chapter 9. Management Accountancy Qualifications154

9.1 Major Facts 154

9.2 Understanding What Management Accountants Do 154

9.3 Skill Set 155

9.4 Formal Education 155

9.5 Professional Designations 156

9.6 Career Ladder 156

9.7 An Example of Managerial Accounting 157

9.8 Types of Accountants Make the Most Money 157

9.9 The Five Major Types of Accounting 157

9.10 Management Accounting is a Good Career 158

9.11 Types Of Costs 158

9.12 Cost allocation Examples 159

9.13 CIMA And ICMA 160

9.14 CMA 162

9.15 CIPFA Model 163

9.16 ACCA 164

9.17 CA 165

9.18 CGMA 167

9.19 Summary 168

9.20 Exercise 168

References 168

Figure Resources 169

Chapter 10. Accounting Methods170

10.1 Introduction 170

10.2 Managerial Accounting vs. Financial Accounting 170

10.3 Key Takeaways 171

10.4 Types of Managerial Accounting 171

10.5 Budgeting, Trend Analysis, and Forecasting 173

10.6 Techniques 173

10.7 Summary 175

10.8 Exercise 176

References 176

Chapter 11. Managerial Risk Accounting178

11.1 Introduction 178

11.2 Understanding Management Risk 179

11.3 Company Management Risk 179

11.4 Fund Management Fiduciary Responsibilities 179

11.5 Fraudulent Activities 180

11.6 Accounting Representation of Risk 180

11.7 Summary 181

11.8 Exercise 183

References 183

Chapter 12. Profit Model184

12.1 Introduction 184

12.2 Example 184

12.3 Strategic Account Management Best Practices 185

12.4 Steps 188

12.5 Exercise 190

References 191

Chapter 13. Event To Knowledge192

13.1 Introduction 192

13.2 What an event manager does 192

13.3 What an event management company does 193

13.4 What an event management proposal might look like 193

13.5 An example of an event management proposal 193

13.6 Event Planning Skills 194

13.7 Top 10 skills needed for successful event management 196

13.8 Summary 198

13.9 Exercise 198

References 199

Chapter 14. Types Of Accounting200

14.1 Introduction 200

14.2 Types of Managerial Accounting 200

14.3 The different areas of accounting and what they entail 200

14.4 Summary 203

14.5 Exercise 204

References 205

Chapter 15. Tools Of Account Management206

15.1 Introduction 206

15.2 Accounting Tools 206

15.3 Basic accounting software 214

15.4 Summary 216

15.5 Exercise 218

References 218

Index222

Chapter 1. Definition and Scope of Accounting Management

Management Accounting or Managerial Accounting means managers use the provisions of accounting information to inform themselves better before they decide matters within their organizations, which aids their management and performance of control functions. That means management accounting is the provision of financial and non-financial decision-making information to managers. In other words, Management accounting helps directors inside an organization to make decisions. Decision-making is a difficult task. It is also known as cost accounting. the way toward distinguishing, examining, deciphering, and imparting data to supervisors to help accomplish business goals. The information gathered includes all accounting fields that educate the administration regarding business tasks identifying with the financial expenses and decisions made by the organization. Accountants use plans to measure the overall strategy of operations within the organization. Management accounting is a profession that involves partnering in management decision-making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy. Management accountants (also called managerial accountants) look at the events that happen in and around a business while considering the needs of the business. From this, data and estimates emerge. Cost accounting is the process of translating these estimates and data into knowledge that will ultimately be used to guide decision-making. The Chartered Institute of Management Accountants (CIMA), the largest management accounting institute with over ١٠٠,٠٠٠ members, describes "Management accounting as analyzing information to advise business strategy and drive sustainable business success. Managerial accounting is the practice of identifying, measuring, analyzing, interpreting, and communicating financial information to managers to pursue an organization’s goals. It varies from financial accounting because the intended purpose of managerial accounting is to assist users internal to the company in making well-informed business decisions.

Managerial accounting encompasses many facets of accounting to improve the quality of information delivered to management about business operation metrics. Managerial accountants use information relating to the cost and sales revenue of goods and services generated by the company. Cost accounting is a large subset of managerial accounting that specifically focuses on capturing a company’s total costs of production by assessing the variable costs of each step of production, as well as fixed costs. It allows businesses to identify and reduce unnecessary spending and maximize profits.

Management accounting involves collecting, analyzing, and presenting financial information to help company management make sound business decisions. Their reports are ultimately used to assist a company’s senior management in making the major decisions determining its financial success. Management accountants are called upon to assess whether a company’s current products and processes are still viable. By comparing data on the projected profits generated by a line of business against the cost of shutting it down, management accountants can determine if operations should be discontinued. In this scenario, a comprehensive analysis would involve consolidating human resource data to assess the costs of potential layoffs and using data from engineering and marketing to decide whether a new product needs to be added to the production line. A complete analysis of this nature would also consider the potential profits that could come from using resources from a discontinued line of business elsewhere.

Management accountants prepare detailed analyses of both business problems and opportunities. Their reports are ultimately used to assist a company’s senior management in making the major decisions determining its financial success.

1.1 Management Accountant Job Functions

There are a wide variety of tasks performed by management accountants. There will most likely be a team of professionals specializing in each area in large companies, while at a small company, there is likely to be only a single person responsible for addressing the entire area of management accounting.

Financial analysis:

Companies often must decide whether to replace equipment, expand operations, or acquire another company. In the end, management will usually choose to proceed only if the potential benefits outweigh the costs. Management accountants prepare the cost-benefit analysis that incorporates all the available information. Costs include all long-term expenses and non-cash factors, including tax benefits from depreciation allowances. Benefits are the profits the project will deliver over its entire life cycle.

Management accounting also requires considering alternative uses for company assets to compare the projected profits from the project under analysis with other available options. It is even possible that a project may have more benefits than costs, but it still might not meet the company’s minimum requirement for profitability, in which case the management accountant would still recommend passing on the project.

Budget preparation:

Management accountants identify all costs associated with a project or a division when they prepare a budget. Traditional budget analysts look at cash flows exclusively, while management accountants consider the full spectrum of costs associated with the project. For example, fringe benefit costs are paid from different accounting categories than labor costs, but management accountants add these costs to the equation to assess the true expenses of production.

Financial management:

Deciding which expenses to cut involves more than just looking at dollars and cents. Management accountants are charged with looking at the impact that potential savings will have on the quality of the product, and sometimes the savings will not be justified when looking at the big picture. Homebuilders face this dilemma all the time since they can substitute less expensive materials, but at the cost of lowering the quality of the home and decreasing the selling price. Management accountants can help strike a balance between what expenses can be reduced without lowering profits.

Auditing:

An audit is defined as a methodical and thorough review of the data shown in financial statements. Management accountants may go through financial statements prepared with GAAP rules to verify that they reflect the actual costs of a project, and they may also enhance those statements by including a non-GAAP analysis that helps management understand the complete financial impact of the project. Audits can follow GAAP standards. Management accountants may apply their expertise and specialized knowledge to deliver a report beyond GAAP. In doing so, they follow best practices guidelines identified by other management accountants and apply statistical information and projections that help make their work more reliable.

Management consultation:

The Big Four accounting firms retain a staff of management accountants prepared to advise large companies on restructuring and potential tax savings questions. Sole practitioners can offer these services to small companies, generally serving as independent management consultants on a contract basis.

Some professionals research best practices for management accounting, while others teach courses to professional audiences or college and university students.

1.2 Management Accounting Certification|

Certified Management Accountant

The Chartered Institute of Management Accountants offers a professional designation that requires passing ten tests. Candidates generally take a few tests a year and complete the program in less than four years. The total cost associated with earning the designation is about $2,000. A bachelor’s degree and professional experience are also required to earn the CIMA designation. Forty hours of continuing education every two years is required to maintain certification in active status.

Professionals can also earn the Certified Management Accountant (CMA) designation conferred by the Institute of Management Accountants, an association made up of more than 60,000 accountants and financial professionals. The designation requires a bachelor’s degree from an accredited university as a prerequisite for the testing program. CMAs pass two four-hour exams – one focused on Financial Planning and Performance Analysis and the second on Control and Financial Decision Making. An enrolment fee of $200 and exam fees of $350 for each exam are required. Two years of professional experience are also required before applicants can become CMAs. Thirty hours of continuing education are required annually and need to include a minimum of two hours in specialized ethics training.

1.3 Educational Requirements

Some colleges offer an associate’s degree in management accounting to prepare graduates to enter the corporate world in entry-level positions. However, a bachelor’s degree will be required to obtain one of the professional certifications in management accounting. Accounting, finance, and business management majors are also well prepared for management accounting positions.

In addition to general business courses, undergraduates should also complete courses in statistics and economics. Operations management is also a helpful course, as it will generally involve issues related to manufacturing processes. An overview of business operations strategies, facilities design, production planning scheduling, inventory management, and quality control will be valuable for aspiring management accountants. Courses in business law, ethics, organizational structure, and information systems technology will also generally be a part of the management accounting curriculum.

For those pursuing master’s and doctorate level degrees in management accounting, coursework builds on core accounting skills and helps develop critical thinking, decision-making, and analytical skills required to meet the challenges faced by business organizations.

1.4 Key Takeaways

●Managerial accounting involves presenting financial information for internal purposes to be used by management in making key business decisions.

●Techniques used by managerial accountants are not dictated by accounting standards, unlike financial accounting.

●The presentation of managerial accounting data can be modified to meet the specific needs of its end-user.

●Managerial accounting encompasses many facets of accounting, including product costing, budgeting, forecasting, and various financial analysis.

1.5 Types of Managerial Accounting

Product Costing and Valuation

Product costing deals with determining the total costs involved in the production of a good or service. Costs may be broken down into subcategories, such as variable, fixed, direct, or indirect costs. Cost accounting is used to measure and identify those costs and assign overhead to each type of product created by the company.

Managerial accountants calculate and allocate overhead charges to assess the full expense related to a good production. The overhead expenses may be allocated based on the number of goods produced or other activity drivers related to production, such as the facility’s square footage. In conjunction with overhead costs, managerial accountants use direct costs to properly value the cost of goods sold and inventory in different production stages.

Marginal costing (sometimes called cost-volume-profit analysis) impacts the cost of a product by adding one additional unit into production. It is useful for short-term economic decisions. The contribution margin of a specific product is its impact on the overall profit of the company. Margin analysis flows into breakeven analysis, which involves calculating the contribution margin on the sales mix to determine the unit volume at which the business’s gross sales equal total expenses. Break-even point analysis is useful for determining price points for products and services.

Cash Flow Analysis

Managerial accountants perform cash flow analysis to determine the cash impact of business decisions. Most companies record their financial information on the accrual basis of accounting. Although accrual accounting provides a more accurate picture of a company’s true financial position, it also makes it harder to see the true cash impact of a single financial transaction. A managerial accountant may implement working capital management strategies to optimize cash flow and ensure the company has enough liquid assets to cover short-term obligations.

When a managerial accountant performs cash flow analysis, he will consider the cash inflow or outflow generated due to a specific business decision. For example, if a department manager is considering purchasing a company vehicle, he may have the option to either buy the vehicle outright or get a loan. A managerial accountant may run different scenarios by the department manager depicting the cash outlay required to purchase outright upfront versus the cash outlay over time with a loan at various interest rates.

Inventory Turnover Analysis

Inventory turnover calculates how many times a company has sold and replaced inventory in a given period. Calculating inventory turnover can help businesses make better decisions on pricing, manufacturing, marketing, and purchasing new inventory. A managerial accountant may identify the carrying cost of inventory, which is the expense a company incurs to store unsold items. If the company is carrying an excessive amount of inventory, efficiency improvements could be made to reduce storage costs and free up cash flow for other business purposes.

Constraint Analysis

Managerial accounting also involves reviewing the constraints within a production line or sales process. Managerial accountants help determine where bottlenecks occur and calculate the impact of these constraints on revenue, profit, and cash flow. Managers can then use this information to implement changes and improve efficiencies in the production or sales process.

1.6 Financial Leverage Metrics

Financial leverage refers to a company’s use of borrowed capital to acquire assets and increase its return on investments. Through balance sheet analysis, managerial accountants can provide management with the tools they need to study its debt and equity mix to leverage its most optimal use. Performance measures such as return on equity, equity debt, and return on invested capital help management identify key information about borrowed capital before relaying these statistics to outside sources. It is important for management to review ratios and statistics regularly to be able to appropriately answer questions from its board of directors, investors, and creditors.

1.7 Accounts Receivable (AR) Management

Appropriately managing accounts receivable (AR) can have positive effects on a company’s bottom line. An accounts receivable aging report categorizes AR invoices by the length of time they have been outstanding. For example, an AR aging report may list all outstanding receivables less than 30 days, 30 to 60 days, 60 to 90 days, and 90+ days. Through a review of outstanding receivables, managerial accountants can indicate to appropriate department managers if certain customers are becoming credit risks. If a customer routinely pays late, management may reconsider doing any future business on credit with that customer.

1.9 Budgeting, Trend Analysis, and Forecasting

Budgets are extensively used as a quantitative expression of the company’s plan of operation. Managerial accountants utilize performance reports to note deviations of actual results from budgets. The positive or negative deviations from a budget also referred to as budget-to-actual variances, are analyzed to make appropriate changes going forward.

Managerial accountants analyze and relay information related to capital expenditure decisions. This includes using standard capital budgeting metrics, such as net present value and internal rate of return, to assist decision-makers on whether to embark on capital-intensive projects or purchases. Managerial accounting involves examining proposals, deciding if the products or services are needed, and finding the appropriate way to finance the purchase. It also outlines payback periods so that management can anticipate future economic benefits.

Managerial accounting also involves reviewing the trendline for certain expenses and investigating unusual variances or deviations. It is important to review this information regularly because expenses that vary considerably from what is typically expected are commonly questioned during external financial audits. This field of accounting also utilizes previous period information to calculate and project future financial information. This may include historical pricing, sales volumes, geographical locations, customer tendencies, or financial