BRANCHES OF ACOUNTING
There are two main branches of accounting: Financial accounting and Management accounting. Financial accounting records the monetary transactions of the company to make sound economic decisions. The final account made by the company is guided under various accounting bodies such as FASB, IASC, and GAAP. The purpose of financial statements is to assist the users for appraising the stewardship of entity’s management while making economic decisions, (ASB, 1999).
Management accounting helps managers to run the organization by providing them essential information to timely decisions. It is also known as Managerial Accounting or Cost Accounting. It is a system that requires collections, classifying and analysis of financial statements that assist managers in the process of controlling and decision-making,
Financial and management accounting can be easily distinguished as ‘External’ and ‘Internal’ accounting. Management accounting is consists of detailed reports of different departments and product which explains the profitability of every product and services within the enterprise unlike, financial accounting which is a summarized report for the entire organization.
Management accounting aims to achieve organizational goal. As implied by its name cost accounting consists of direct or standard costing, budgetary control, etc. It requires timeliness of information contrast to, financial accounting which requires precision. Management accounting is not mandatory for the organization but enables them to perform with effectiveness and efficiency.
RESPONSIBILTIES OF MANAGEMENT ACCOUNTANT
With the growth of digital economy many organization faces combative markets, changing technologies that requires them to adapt changes to uphold with competitive advantages, this has created an important implication for management controls for examining the developments, (Bhimani, 2003). As managerial accounting aims at report internally to managers for internal controls and decision-makers. Following are the main responsibilities for management accountant.
According to Porter (1980, 1985), there are five factors that determine ability of an organization i.e. prices, costs, and returns that reflects the economy. Our management accountant will guide as through standard costing procedures as a single cost is divided into direct cost or overhead (indirect costs) and variable or fixed costs. The identification of cost helps the managers to apportion costs to different products giving us a vague idea about the profitability. The success of manufacturing, marketing and product design is due to product-related strategies which will help Creative Ltd for further expansion in near future.
- Inventory Control
Management accounting deals with the cost of inventory. Inventory controls deals with levels of inventory, it also includes the ordering, purchasing, receiving and storing goods. It will help us to deal with clientele of our baby clothes.
- Investment Appraisal
Investment appraisal is plays an important role in the financial ability of the company. Investments include long term investments such as purchasing of machinery, plants and equipment. Management needs to estimates the initial investment, future costs and revenues arising from the investment. The value of $1 in yr ?. Such investments require thorough decision-makings.
- Total Quality Management
As our company is focusing on cost reduction, quality and flexibility during this economic recession the use of total quality management (TQM) and value-added-management are going to be useful for us.
Budgeting is a very important element of management accountant, budgeting involves comparing targets costs with actual costs incurred and the outcome is calculated as favorable or adverse variances. A budget does not specify actions but it evaluates the financial consequences of each action. As our company has been expanded in last two years the importance of detailed annual budget is realized to track the outcomes. We could use our budget for e.g. say, our marketing budget is about 5% of our annual sales.
- Balanced Scorecards
A balanced scorecard (BSC) is a set of measures of firm’s business model. It is a collection of financial and non-financial measures based on the current organizational strategy, (Kaplan and Norton, 2001). It highlights the opportunities for improvement and essential changes that threaten the current organizational strategies. Balanced scorecard may prove to be highly useful to Creative Ltd to examine potential threats from external environment or the development concerns of internal resources.
- Ratio Analysis
Ratio analysis alerts the manager against adverse indications of the business. Ratio analysis is done by comparing its performance of the company with its own ratio of successive years or with an average of business similar to ours. Important ratios include liquidity, solvency and leverage ratios (Steffan, 2008).
DUTIES OF FINANCIAL ACCOUNTANT
My current duties as financial accountant comprises mainly of 4 A’s, these are: anticipation, acquisition, allocation and assessment of funds. According to IASC (1982), a financial manager is responsible to prepare financial statements according to general accepted principles, to work with harmonization of regulations, accounting standards and procedures. Under the broad category as the only qualified accountant in Creative Ltd, my duties include controller, finance officer, credit and cash manager, risk and insurance manager.
Controllers require the preparation of financial statements which includes statement of financial position, statement of comprehensive income, statements of cash flows and notes to the accounts. Finance officers formulate budget reports and supervise the investments funds, management activities, perform capital-raising strategies which carry the firm’s expansion.
As credit managers I am required to establish credit-rating of our customers and monitor the accounts payable and receivable department of the business. Monitoring and controlling the cash receipts falls under the responsible of cash manager, who is required to evaluate whether the requirement of cash should be financed through loans or investment should be made for surplus cash.
Approving loans, formatting reports to attract business, making annual budget report on the fiscal aspects on salary recommendation, expenditure trends and assisting customers with account problem also falls under my responsibility,
In the end, I would like to conclude by stating that the need of assistant management accountant to assist me in this fast pace of business. His basic responsibility will be to process basic cost and quantitative information to support management for planning and decision-making. With the help of a management accountant we would increase the profitability of Creative Ltd by reduction in costs and effective performance appraisal which would result in growth in sales.
The Accounting Standards Board. The Statement of Principle for Financial Reporting (Dec 1999)
Bhimani, A. (2003). Management Accounting in the Digital Economy. Oxford: Oxford University Press.
Porter, M. E. (1980). Competitive Strategy: Techniques of Analyzing Industries and Competitors. New York: Free Press.
Kaplan and Norton, D. P. (2001). ‘Transforming the Balanced Scorecard from Performance”.
Steffan. B (2008). Essential Management Accounting: How to Maximize Profit and Boost Financial Performance.