Financial Accounting and Costing Financial Figures

Question: Discuss about the Financial Accounting and Costing for Financial Figures. Answer: 1. The management uses the financial figures to the financial and non-financial decisions, So, it is very important that the management gets the correct and precise financial figures for taking correct decision. So, there are some factors which drives the management accounting work which are as follows: Quality of information: It is the information which will lead to the final decision. If information is not accurate or not genuine, then result will automatically will be incorrect. So, the management accounting system depends upon the quality of its input. In other words, the accountant of the company should have sufficient knowledge of the accounts so that he be able to punch correct entries. Timeliness of information: information is only useful when it is required. If information is late then decision will be late and the profits of the company can gets converted into losses. So timeliness of information is very important. Availability of resources: The required resources are very important to implement the decision taken by the top management because without resources no decision will yield desired results. 2. There are 4 functions of management accounting which are as follows: Planning Organizing Controlling Decision making Now we will discuss about controlling function: Control relates to the measuring, monitoring, evaluation of the actual results and then correcting to ensure that the desired results are achieved. In controlling function feedback is very important because feedback is that information which tells a person what other person thinks or feel about them. So correct feedback is very important. In the same way management accounting helps in controlling the organization because it helps in creating performance reports or variance reports through which the performance of the employees gets increased. 3. The statement given in the question Cost accumulation to determine the cost of goods sold is an example of the control function of management accounting work is false because cost accumulation gets determined for calculating the cost of goods but not for performing control procedures in the organization. Control functions does not calculate cost of goods It determines whether the performance of the organization is going on track or not. The statement that if a company is using perpetual inventory system then there is no need for physical count is wrong because in perpetual inventory system regular recording of inventory is there. But it does not mean that no physical count is necessary because counting of physical inventory is necessary to cross check whether the accounting records are correctly maintained or not. Physical counting is just to cross verify that the actual stock matches with the stock in the books. Moreover at the yearend physical counting is necessary for closing the books. If there is any difference between the accounting records and physical inventory then, the difference has to be find out or reconciliation has to be made. Explanation of why ABC Method is Better than Conventional Method: Its not this that it is fashion to use ABC method but because of its logical method to apply in the industry. This ABC method is prevalent just because the conventional method allocates cost equally irrespective of the department contribution which is been done in ABC method. Industry considers ABC method more logical because why the cost of that department should be should be allocated to that product in which that department has not contributed. In conventional method all overheads are allocated equally i.e. total overheads divided by total production units. But in ABC method allocation is based upon department contribution in manufacturing of that product. In other words overheads of one department will not be allocated to that product in the manufacturing of whose that department has no contribution. There can also be difference between the profit calculated from the traditional and ABC method because the method of distributing the cost to respective departments is different. ABC method distributes cot on the basis of cost drivers. The allocation gets logical under ABC method whereas under traditional method there is no logical method but distribution Is done equally. More over in todays industry all the companies are following ABC method because with this method actual contribution of a particular department is known and cost is allocated proportionately without equal distribution. Difference Between ABC and Conventonal Method of Costing: Following are the differences between the ABC method and conventional method. ABC- This method starts with the identifying activities and then to produce the products but in conventional method products are manufactured and then the costs are allocated. ABC- Under this method main aim is to produce the products but in conventional method the main aim is to distribution of costs and allocate the cost. In ABC method costs are distributed on the basis of cost drivers and the costs are distributed on the basis of contribution involved in particular department but under conventional method costs are allocated equally irrespective of contribution under particular department. References: Small Business, What are the factors affecting the management accounting systems?, viewed on 19th Aug, 2016, https://smallbusiness.chron.com/factors-affecting-management-accounting-systems-79769.html. Recruiter, The Benefits of Online Accounting, viewed on 20th Aug 2016, https://www.recruiter.com/i/the-benefits-of-online-accounting/. Kash Flow, Accounting Software with Payroll, viewed on 5th April 2016, https://www.kashflow.com/