Management accounting at the enterprise

When conducting their own business, any entrepreneur needs to know what goods are in high demand, how much their production costs, and what profit can be obtained from sales. All companies record this data. Some companies record operations in regular journals, others use computer tables, while others go further and implement special schemes. One of them is a management accounting system. It allows you to automate the process of collecting information, which, in turn, provides a holistic picture of the company’s work in numbers at any time. Let us further consider how the organization of management accounting is carried out.

The main components

The fundamentals of management accounting are formed by two elements. The first includes a set of tasks aimed at building the structure, choosing the performers of the corresponding functions, setting the deadlines for the appearance of reports. The second element is formed directly by the technologies themselves. These include:

1. Management accounting methods.
2. Reporting methods.
3. Evaluation of information and their analysis.
4. The criteria by which the reflection of current operations.

Management accounting and analysis include various technologies. In this regard, the company should have employees who can easily distinguish a loan from a debit, understand the development and implementation of tasks.

Management Accounting Principles

The need to set various tasks related to the development and functioning of the business makes management think about the formation of such a reporting scheme that would allow without special difficulties:

1. Receive current information about your company and physical indicators.
2. Monitor the financial consequences of decisions made.
3. Observe the performance of the entire company and its individual divisions, and in some cases evaluate the effectiveness of specific operations.

Management accounting system is a detailed scheme for collecting and processing information. It involves the implementation of functions relating to:

• The complex of processes that shape the work of the company.
• Subdivisions involved in various operations.
• The resources used in the processes.
• Indicators by which the characteristics of other administrative objects are reflected to achieve the strategic and current goals of the company.

Management accounting principles allow you to structure all the information that is collected and processed in a monitoring mode.

Goals

The completeness and clarity of the overall picture of the company’s work will depend on how well the organization of management accounting has been conducted. As you know, the search and processing of information are the direct responsibilities of the marketing service. However, in practice, often experts are limited to collecting only external data. In particular, they study prices in industry markets, the competitive environment, and so on. Management accounting in the enterprise involves internal marketing. It includes a thorough study of the company itself. Information management accounting allows you to create a complete picture of the economic condition of the business, establish a safety margin, determine the development prospects and potential of the company.

Distinctive features

The considered scheme is implemented mainly to increase the efficiency of administration, and not for a subsequent report to supervisory authorities. This distinguishes financial and management accounting.In this regard, it is necessary to entrust the conduct of administrative control to competent specialists in this matter. The administrative report is not compiled in the same way as the accounting report. Management accounting involves the use of specific tools and approaches. In addition, the objectives of these works are different. The rules by which an administrative report is generated differ from those on the basis of which an accounting report is compiled. Management accounting is necessary exclusively for the development of the company, identifying urgent tasks and optimal options for their implementation.

Circuit advantages

Management accounting at the enterprise has the following advantages:

1. Flexibility and the ability to easily adapt to any new processes that arise during the work of the company.
2. Focus on a specific company. It is worth noting that this is another sign that distinguishes financial and managerial accounting. If the first is conducted according to a uniform scheme for all companies, then the second is compiled for a specific company taking into account its profile.
3. The presence in the scheme of both monetary and in-kind indicators.
4. With proper implementation, the scheme is clear to all company specialists and department heads. At the same time, interim accounting of managerial decisions allows the latter to most effectively implement everyday tasks.

Urgency of the problem

There is an opinion that management accounting is very complicated, therefore its implementation is advisable only in large companies. However, this is not entirely true. In fact, management accounting is carried out in full only in 10% of all firms. But even before the owner of a small retail chain, at some point, the problem of fixing products and the results of their sales may arise. For example, an entrepreneur sells cosmetics and perfumes. In each stall working for him there are more than 1000 items, and in total about 10 thousand positions are involved in the turnover. If it has 1-2 points, then fixing the turnover of products is not so difficult. But if his business begins to expand, then there is a need for periodic inventory. And in such cases, the entrepreneur understands that it is almost impossible to collect reliable information. Such situations are considered typical of any business. Handicraft methods of management accounting and profitability assessment significantly slow down the development of the company. Ultimately, this has a negative effect on profit.

Administration Specifics

For effective control over the work of the company, management must promptly receive data on three positions. Management accounting, therefore, provides for the collection and processing of information:

• at the cost of production;
• assortment of products;
• financial turnover.

These three elements are closely related to each other, and between them there is a continuous exchange of data. If management accounting will affect only one of these areas, then the result will not be objective, and most importantly, a complete picture. So, if only a sales report is compiled, it will not make it possible to identify changes in demand for certain products, or to understand how much of them was sold.

Assortment control

Management accounting of goods involves:

1. Strategic planning. For any company, of particular importance is the effective distribution of funds, taking into account the possibilities and changes of the market and the company's potential.
2. Current control. During it, continuous assortment monitoring is carried out. If necessary, an adjustment is made to the plans drawn up taking into account the current situation and forecasts for the future.

For efficient assortment management, a company should develop its own product classifier. This is especially true for those firms in the circulation of which are hundreds and thousands of products.By classifying, products can be divided into non-interchangeable and interchangeable. Each section should not include a large number of positions. Otherwise, it may be difficult to analyze the information. In addition, it should be borne in mind that sales volumes by position in each section should be generally comparable. For example, when comparing a turnover of 7 million rubles and 400 thousand rubles, preference may be given to the release of the first product. This, in turn, can lead to the complete exclusion of the second from the range. But this can be a strategic mistake, because it is in this product that regular customers of the company may need.

Required Information

Assortment management involves the study of dynamics:

• product prices;
• sales
• stocks;
• cost price;
• arrived;
• weighted average purchase price of raw materials;
• the share of a particular product in the turnover of a group of products.

In addition, information on the weighted average turnover period of the goods is required.

Accounting for management expenses

The owner of any company seeks to maximize profits. One of the options for achieving this goal is the constant identification and reduction of costs. But if we take into account only the financial statements, then it is almost impossible to realize these tasks. This is due to the fact that in the balance sheet of the company reflects all the costs of the fact. For example, a company stores products in a warehouse. From the accounting position after the release of products, its cost is unchanged. In this case, the costs of paying for the warehouse, the salary of the storekeeper, and specialists in the sales department are not taken into account.

If the raw materials for production were purchased on credit, then before the obligations are paid off, interest is accrued on the loan agreement. All these additional costs are reflected in management accounting. With its help, the cost price of each unit of production is determined not for taxation, but for obtaining the most complete information about costs and controlling them. Effective cost management involves the development of a special costing scheme. It should include all the details. Next, you need to create a "tree" of costs. At the same time, costs must be classified so that later they can be easily compared with each other. If at one of the levels of various expenses there will be too much and significant differences are revealed between them in absolute terms, then accounting will not be effective.

Cost control

In this case, the classification of the whole process by stages will serve as the basis for effective calculation:

1. Supply.
2. Manufacture.
3. Implementation.

The base cost includes the price of semi-finished products, raw materials, customs taxes and probable excise taxes, other costs. In the manufacturing process, production costs are added. Further, the cost increases with the sale of goods. After the implementation, additional costs may appear (in the form of taxes, for example). Considering the formation of cost in this way, you can timely take the necessary measures to reduce costs at each stage of the process. A stable operating scheme allows management to know at any time about all changes regarding any position, group of goods or the entire volume of products.

Money movement

When introducing management accounting, it is necessary to correctly distribute funds between the departments of the company responsible for their movement. Such departments are called financial responsibility centers. Each such unit has its own budget. The managers of these centers have the right to make certain decisions regarding money on their own. Decentralization helps to increase the operational efficiency of departments and the entire company as a whole. In addition, it allows you to achieve transparency in the business.In this case, the management of the company is easier to exercise control over the activities of specific sectors of the enterprise and see the sources of costs and profits.

The benefits of dividing into the CFD

In practice, these centers work well for the following reasons:

1. Line managers have a large amount of information regarding the state of affairs in their own unit. This, in turn, ensures their ability to make more relevant and timely decisions than company management.
2. The interest of employees in the results of their work is increasing, which increases their initiative.
3. Top managers, in turn, are exempted from the need to solve small tasks and issues every day. This allows them to concentrate on strategic goals.

Disadvantages of the centers

The disadvantages of decentralization include a number of important points. First of all, there is a possibility that line managers will make a decision that will meet the interests and goals of their Central Federal District, but diverge from the tasks of the entire company. In addition, the heads of some units may be inattentive to the activities of other departments, slow down their work. To eliminate these shortcomings in the company, it is advisable to create a balanced scorecard. The figures should outline the general strategic objectives that the company faces (for example, double the sales volume per year), and draw up an action plan aimed at their implementation. This will guide the units of the enterprise.

Main rules

To successfully prepare information for making complex decisions:

1. Use a cost-benefit approach. This, in particular, is about the distribution of resources to those alternative options that will maximize the achievement of the primary goals of the company, but at the same time are the least costly.
2. Be mindful of employee behavior as well as technical aspects. The role of the collective and individual employees in the effectiveness of control and planning should not be underestimated. Employees themselves should remember that control schemes are not limited solely to technical parameters (for example, the type of software or the frequency of reporting).
3. Use various means for different purposes. It should be said here that not always the concept of cost accounting for external reporting will correspond to that used to draw up the internal balance sheet of the company.

Cost-Benefit Approach

Quite often, accountants have to deal with the need to prepare information to ensure the most rational distribution of available resources. For example, the question may arise: to purchase new software or to attract a specialist who would update the existing one? The solution of such problems is more appropriate using the “cost-benefit” approach. The main criterion for choosing an alternative option will be an increase in expected profit over estimated costs. For example, the company plans to introduce a new budgeting system. Previously, the company operated a scheme that included the collection of factual information, and a poorly formalized planning model. The main advantage of introducing a new budgeting system will be that department heads will be able to conduct regular formal forecasting. In this case, the income from the scheme that will be received will exceed the costs of training employees, purchasing equipment, and so on.

Technical and behavioral aspects

Management accounting scheme performs two tasks simultaneously:

1. Helps to find the right answers to current questions.
2. Motivates the behavior of department heads and other employees to achieve the main goals of the company.

Management is primarily aimed at providing support to other specialists in order to increase the efficiency of their work. In some situations, it is more advisable for the unit manager to communicate with an employee subordinate to him personally than to send him dry instructions.

Different means for different purposes

As an example, consider the cost of promotions in connection with the introduction of a new Microsoft product. Its useful life is from 2 years or more. When compiling external reports (for example, for the founders of a company), all expenses for advertising on TV are included in reducing revenue in the year in which they are made. This acts as a mandatory requirement when preparing balance sheet documents. For management purposes, in turn, advertising costs in the preparation of internal reporting can be capitalized and written off to reduce income over the next few years. Documents reflecting the movement of funds can be executed both for third-party interested parties and used within the company itself. In this regard, special accounting methods may vary depending on the situation.