Financial and Management Accounting: The Contribution to Effective Business and Management

Introduction

Accounting plays a critical part in any business. This is particularly practiced in business control systems as business records and information is a valuable asset which has to be well managed and protected (Bhimani, 2003). The accounting records are used as supporting documents in assurance that particular transaction took place or even identify decisions made. Records are maintained to support all business tasks and are critical in assessing policies and used in analyzing business performance. A reliable record makes it possible for government institutions to manage state resources such as revenue and the nation’s civil service. At the same time, it is through proper financial information that business management is held accountable for their decisions and actions. Many businesses use accounting data to generate records for their management purposes which is often identified to be their cornerstone for development of their business decisions (Hopwood, 2008).

The accounting procedures in regard to identification of business performance dwelt so much on traditional practices, which relies on the quantitative ways of measuring enterprise performance. On the contrary, modern business practices concentrate on building a centered attention on use of non-financial measures in terms of business performance. This has been a routine used in stimulating and report on performance of the business. Neely (2002), argues that any organization, whether public or personal has to live within financial limitations and deliver the perceived value for the invested amount to its investors. The role of finance, therefore remains to manage financial possessions of the business making sure that the financial limitation faced fulfilled.

Nature of accounting in Business

Globally, businesses use accounting as a service function. Credited accountants use business accounting information to communicate useful financial position of a business which is critical for decision making. Accounting records in any firm is reported to be responsible for business functions as well as control business operations (Collier, 2005). The business can endure for a certain period exclusive of marketing plan, deprived human workforce management as well as business approaches. Financial and management accounting defines business process of identifying, recording and ultimately communicating financial information, in realizing informed judgment. On a positive side, business management has to adhere to superior accounting principles to help in keeping the enterprise under control, provides business owners, management among other interested parties with the right information and confidence in making bold decision, while taking chances and allowing the business grow (Hopwood, Leuz, and Pfaff (2004).

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Management of Accounting Records

Most of government institutions and businesses across the globe are continually engaged in the process of increase their domestic establishments (Hopwood, 2008). These users of financial information can further be classified as follows owners of the business also known as the shareholders, business management team, other business employees, lenders, suppliers, government agencies and customers. Of all these the most important have been those who provide the required cash for business investment and management responsible business trading decisions. Finance is concerned with the process of raising capital from capital financial markets. It covers business elements such as market operation for both short and long term finance, sourcing the most appropriate form of capital, making good investment decisions within the firm and identifying cost of capital the business employs (Bennett, 2002). At its undemanding level, financial accounting is all about creation of a summary and totaling up business financial values and transactions that are directly associated with the enterprise or other enterprise.

A case study on Cost Accounting Implementation in ALFA SA

The company is located in Poland; it was first established over two decades ago. ALFA SA was developed to supply bowels among other products to meat processing plants. With time the scope of goods offered by the firm increased as the number of business clients were driven to a much more dynamic setting.  This was achieved through the company’s decision to expand the business. It prompted company manufacturing flexibility which was applied to realize the business objectives. The initial business strategy aimed at purchasing ready made products while replacing them with company’s made goods. This saw the company creates an available network across the country in support of modern technologies implementation. For instance, ALFA SA developed sales network to expand their services both within the country and abroad.

The company’s management aims at achieving customer satisfaction. The produced products received material approvals. In addition, the firm’s product were granted foreign certificate. It had a functional formation with its basic tasks among them being manufacturing, logistics, sales and finance. The business involved activity based costing in their decision making process. Luck of financial records on costs and business profit has made the firm to primarily depend on broad instinctive decision-making as the only tool of management within the management.

Comparison between Management and Financial Accounting

Accounting is responsible for providing detailed information on business, importantly for decision making (Hopwood, 2004). The distinction between these two regards the consumers whom information is delivered to. Financial records avail useful data to stakeholders, creditors among many others seen as being external users of business data. Financial accounting targets a broad base of external users, of all these users none of them is involved in preparation of reports or gain access to underlying details of the reports. Bennett (2002), suggests that the user’s ability to comprehend and develop confidence in financial accounting reports published by an enterprise depends on regulations governing the practices that are used to prepare business reports.  This is the only way that reports of different businesses can be understood and even be compared to other businesses.

According to Hopwood (2004), often business financial information is not broken down to provide enough details for business internal users, the business thus relies on managerial accounting for detailed information purposefully for decision making. This includes internal groups at all level of business administrative and sometime to different workers. The main objective of management accounting is providing information for internal decision making. This kind of information is primarily useful for planning and control purposes within the business. There are numerous differences that can be seen in financial and management accounting and can be as follows. When we contrast the two we realize that managerial accounting differ due to the following:

Management Accounting on Business decision making

In management accounting, while part of reports is standardized often many are developed out of natural thoughts transformed to an investigation that can be supportive for purposes of decision making (Foster, 2006).  For instance, firm managers may choose to contrast business administrative costs on either of their divisions deterring cost differences if any, fresh brand of raw substance used to produce final products or any extra irregular evaluation used when coming  up with decisions. Management accounting emphasize on the future while financial accounting relies on the past. Often, information developed in an enterprise’s financial records dwells so much on historical nature in representing of transactions that the business previously took part. Management accounting is considered a forward-looking and dwells so much on future expectations. Managerial accounting will often use earlier period results as a source of informational data in predicting future outcome. On the other side, financial accounting particularly stays away from forecasting to purposely shun from developing false information to potential customers and investors (Amernic, and Robb, 2003).

Appling GAAP Rules in Business Functions

Management data obtained from accounting is solely used within the business. However it is not a must for it to act in accordance with GAAP principles (Amernic, and Robb, 2003). The  external regulatory bodies for example FASB, SEC and so forth provides external reporting policies and regulations for published reports has to basically fall under financial accounting role in reporting and information the public. Accounting regulatory bodies’ main concern is directed towards ensuring that firm’s external reports comply with GAAP since; external users of firm’s rely on this information. Many of these users would like to gain insight information on what took place in terms of business performance for investors and business position in regard to credit repayment (Hopwood, 2008). Similarly, external users of this information are not concerned with future plans or even how company analyses its costs. However, there are no policies or specified formats that exist for company’s internal reporting system. Hence, management freely forms their analysis to reach the required decision.  In addition, when comparing managerial and financial accounting, managerial accounting offers a more timely information where evaluations are developed as demanded instead of occasionally during the end of an accounting period.

Emphasis on Quantitative As well as Qualitative deliberations

Managerial data provided for decision making is distinctive, bearing in mind that qualitative reflections obtain fairly impressive attention. It hands much of business aspects that are not quantified into amount for instance, worker’s morale, society and ecological consequences and business’s reputation. Since these kinds of items are not valued items of dollars it is difficult to include them in publicly disclosed reports (Milgate, 2004).

Accounting Limitations and its Benefits to Business Operations

Accounting strategies are aimed at how well the business competes and at the same time remain sustainable and successfully in the market or industry Botten (2007). It remains important that the company should focus on specific strategies within managerial accounting, which is easily identified concerning incurred cost, overall business efficiency, profit returns, risks of the venture among many other elements involved in the chosen strategy. Heidmann (2008), affirms that business management has to aim at elevating the company above breaking even cost level.

The company can achieve all these through inclusive and extensive consultation derived from efficient and reliable financial reports, which are important in supporting managerial strategy laid out for future improvement.  With the use of financial information, the business can comfortably plan and settle its expenses effectively while sparing part of its capital returns for growth development and create a vibrate business (Bhimani, 2003). The business stands to benefit from management accounting activities through developing and monitoring business strategies for a profitable result, considering that accounting practices emphasis is placed on relative levels and trends in real costs, prices and volume in production, market share, cash flow and stewardship of the available resources in the identified business (Bennett, 2002).

Similarly, accounting identifies the importance of managers to objectively point out strategies that add certain probable value to traditional management accounting. These strategies are aimed in extending the role of accounting into different dimensions, as business systems are designed in a manner that aligns costs incurred in managerial accounting strategies. Assertions involvement in a fair and general way compares and analyzes cost structure of competitors while monitoring changes over a given time. In achieving this, the management can come up with distinct approaches involving company’s cost product that is perceived to give value to customers (Drury, 2007).

Modern business environment has increasingly industrialized to earn the competitive and dynamic sharpness in all aspects. Accounting concepts applied within and out of the business context in regard to management and financial accounting, are reported to have increased concerns in developing a reliable system of accounting for better business operations.  Managerial accounting in particular, has a bigger responsibility that concerns provision and use of accounting information to managers within the organization Smith, (2007). On several occasions, management accountants contribute to issues concerning risk management. This involves designing a framework program to measure, identify, manage, and report risks for the achievement of the organization (Hopwood, 2008). The manager applies professional knowledge and skills in preparation and presentation of financial and other decision oriented information in a way that will assist the organizations management to formulate policies, plan and control the operation of the under taking.

Conclusion

Business entities have to know their financial position and performance to intelligently identify some of the things that are being done in the right way. Most businesses have involved accounting as a business technique outlining their performance and evaluate on whether business practices meet the balance needed between what the firm brings in to its system and what is taken out. Financial records draw its focus on financial position of the business to offer financial related issues, which is useful for internal and public consumption in regard to the business. To harmonize financial accounting, businesses use management accounting to evaluate its performance. There are connections between financial and management accounting, the link creates a diminishing focus that does not support proper operations. However, the connection brings about decisions which are then done with single aim which involves improving business performance.

Bibliography

  • Amernic, J.H & Robb, S. (2003) ‘Quality of earnings as a framing device and unifying theme in intermediate financial accounting’, Issues in Accounting Education, vol. 18, no. 1, p. 5.
  • Bhimani, A. (2003). Management Accounting in the Digital Economy, Oxford University Press, Oxford.
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  • Bennett, J. J. (2002). Environmental management accounting: informational and institutional developments. london: Springer.
  • Milgate, M. (2004). Transforming corporate performance: measuring and managing the drivers of business success. New York: Greenwood Publishing Group.
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