How Should Accounting Models and Techniques Be Adapted to the Needs of Small and Medium-Sized Enterprises - Coursework Example

w should ассоunting models and tесhniquеs be аdарtеd to thе nееds of small and medium sized еntеrрrisеs? Name Subject Professor Date Ноw should ассоunting models and tесhniquеs be аdарtеd to thе nееds of small and medium sized еntеrрrisеs? Сritiсаlly discuss It is apparent that the contemporary business environment has become extremely dynamic and unpredictable. In turn, this has made the role of managing organizations more demanding and hence requires the establishment and execution of effective management strategies as a way of allowing for success and survival in the competitive business world. Accounting tools and techniques become handy in allowing for efficiency, effectiveness as well as productivity of business organizations. Small and medium sized enterprises are not to be left behind. For instance, cost accounting could be helpful for the small and medium sized enterprises since it advises their management on the most suitable course of action with regard to capability and cost efficiency. Different ассоunting models and tесhniquеs can be applied in small and medium sized enterprises to allow them function better and fulfil their goals and objectives (Garrison, Noreen, Brewer, and McGowan, A., 2010, p.784). This piece of paper will give a critical discussion of the manner in which different ассоunting models and tесhniquеs can be аdарtеd to thе nееds of small and medium sized еntеrрrisеs. According to Macintosh and Quattrone (2010, p.112), different accounting tools and techniques could be suitable for different types of enterprises. Accounting is an essential aspect in the business world. It is a practice and body of knowledge that is involved with keeping financial records, recording transactions, performing internal audits and providing advice on taxation matters among others. An accounting model can be defined as a set of fundamental concepts, procedures, assumptions and principles that establish the methods of identifying, recording, measuring as well as reporting the financial transactions of an entity. Some of the factors that influence the type and amount of management accounting tools and techniques adopted by organizations include the size of the enterprise where large ones apply more of them than the small ones and the external stakeholder requirements involved. The nature of the organization’s operations and the environment in which it operates and the financial constraints and senior managers’ background experience also affect the adoption of management accounting practices (Armitage, Webb and Glynn, 2016, p.56). Small and medium sized enterprises are significant to the growth and development of economies. This is more so since they have great potentials to develop indigenous entrepreneurship, generate employment, allow for diversification, and enhance local technology and forward integration with large scale enterprises and industries. To allow them achieve maximum success in their undertakings, appropriate accounting models and techniques should be applied. It is however worth noting that the extent to which the enterprises use the contemporary management accounting tools and techniques is not widely discussed. According to Armitage, Webb and Glynn (2016, p.31), small and medium sized enterprises do not fully utilize common management accounting tools and techniques, compared to other large companies such as those in the manufacturing industry. Some of the factors that affect the adoption and utilization of management accounting tools and techniques include the perceived decision-usefulness of the techniques whereby some of them could be thought as not being considerably helpful. Most small and medium sized enterprises fail to leverage the potential linked to accounting tools and techniques with regard to assisting them attain their financial objectives. There is also the issue of complexity of the environment in which the small and medium sized enterprises operate. Another factor is the age of the small and medium sized enterprises whereby they could not be well established to a point of effectively adopting and using the tools and techniques. Most of them also fail even before they are fully established in the industries (Robu, 2013, p.1) All in all, it is essential that the enterprises make use of the techniques to be in a position to enjoy the benefits involved. In as much as the techniques could be costly initially, the return on investment is worth. Rompho (2011, p.39) concur with the above statement that small and medium sized enterprises are a backbone of many economies across the globe. Nonetheless, most entrepreneurs do not understand the significance associated with accounting tools and techniques and how they contribute to business growth and assist them to operate efficaciously, effectively, ethically as well as economically. According to Nandan (2010, p.65) some of the essential accounting tools and techniques that could be utilized by small and medium sized enterprises particularly in management accounting include financial planning, cost accounting, financial statement analysis, standard and marginal costing, management information systems, budgetary control and decision-making accounting among others. Financial planning is an imperative tool in the achievement of business objectives. The principal objective of business organizations is the maximization of profits which is attained by making proper financial planning. Financial planning entails making decisions in advance with regard to financial activities that are required in the achievement of primary objectives. It includes establishing both short term and long term financial objectives of the business, devising financial policies as well as coming up with financial procedures aimed at attaining the objectives. Cost accounting presents cost data as it relates to product, process, department and other elements, which are then compared with predetermined one. The comparison of the two costs is essential as it allows the management to identify the reasons for the difference and the best course of action. Financial statement analysis entails the evaluation of financial statements such as the balance sheet and the profit and loss account of a business organization. This helps in knowing the rate of growth of the business. Some of the techniques used in financial statement analysis include trend analysis, comparative financial statements and ratio analysis. This results in presentation of information that assist in decision making by the investors, business executives as well as creditors associated with an organization such as small and medium size enterprises Santini, 2013, p.93). It is helpful in the measurement of profitability of various lines of production, divisions and departments of an enterprise. Standard and marginal costing are also essential accounting tools. Standard costing entails predetermined cost that allows for measurement of actual performance. On the other hand, marginal costing technique assist in fixing the selling price, best use of scarce resources, selection of best sales and other important business decisions (Lavia López and Hiebl, 2014, p.101). Management information systems allow for the free flow of communication with an organization, an aspect that is quite important for effective functioning of the business. Budgetary control techniques allow for the estimation and arrangement of future financial needs in accordance with a stipulated standard. Budgetary control helps in the control of financial performances of a business as the operations are directed in a positive manner. On the other hand, decision-making accounting offers the best and most profitable alternative to solve a problem (Lee, Park, Yoon and Park, 2010, p.292) All these tools and techniques can go a long way in enhancing the performance and productivity of small and medium sized enterprises. For instance, financial planning allows for effectiveness in carrying out various financial activities and eventually achieves the organization’s financial objectives. Management information systems also help in the coordination of all units in an organization through effective communication and free flow of information. SQK Accountancy (2015) advises that there is need for management accounting education for business owners and their management. Management accounting education is particularly crucial to small and medium sized enterprises executives. This is more so in case they run a business that has the potential to expand as failure to make use of some tools such as overhead allocation techniques could cause some problems. Some techniques are highly relevant and important at some point in organizational decision making. Small and medium sized enterprises can benefit from various management accounting tools and techniques that in one way or the other support decision making for instance cost analysis and capital expenditure appraisal techniques that help in risk management. New entrepreneurs should also be educated on significant need to embrace working capital management, product costing and break-even analysis as a way of giving them a chance to survive in the competitive business environment. The benefits that small and medium sized enterprises get by making use of different accounting tools and techniques are significant and should not be underrated or ignored for anything else. Some of the factor such as cost and doubt on the potential of the accounting tools and techniques are outweighed by the benefits and the expected return on investment. From the above discussion, it is clear that small and medium sized enterprises play a great role in lifting economies. This is usually through aspects such as providing employment opportunities for the communities and developing indigenous entrepreneurship among others. For this reason, it is essential that the enterprises are run and managed effectively to allow them achieve their goals and objectives. One of the ways through which the small and medium sized enterprises can be uplifted is the use of accounting tools and techniques in their operations. The combination of the benefits associated with the different models and techniques of accounting will without doubt enhance the efficiency, effectiveness as well as productivity of the small and medium sized enterprises. References Armitage, H. M., Webb, A. and Glynn, J. 2016. The Use of Management Accounting Techniques by Small and Medium-Sized Enterprises: A Field Study of Canadian and Australian Practice. Accounting Perspectives, 15: 31–69. Garrison, R.H., Noreen, E.W., Brewer, P.C. and McGowan, A., 2010. Managerial accounting. Issues in Accounting Education, 25(4), pp.792-793. Lavia López, O. and Hiebl, M.R., 2014. Management accounting in small and medium-sized enterprises: current knowledge and avenues for further research. Journal of Management Accounting Research, 27(1), pp.81-119. Lee, S., Park, G., Yoon, B. and Park, J., 2010. Open innovation in SMEs—An intermediated network model. Research policy, 39(2), pp.290-300. Macintosh, N.B. and Quattrone, P., 2010. Management accounting and control systems: An organizational and sociological approach. New York: John Wiley & Sons. Nandan, R., 2010. Management accounting needs of SMEs and the role of professional accountants: A renewed research agenda. Journal of applied management accounting research, 8(1), p.65. Robu, M., 2013. The Dynamic and Importance of SMEs in Economy. USV Annals of Economics & Public Administration, 13(1). Rompho, N., 2011. Why the balanced scorecard fails in SMEs: A case study. International Journal of Business and Management, 6(11), p.39. Santini, F., 2013. Strategic Management Accounting and financial performance in the small and medium sized Italian manufacturing enterprises. Management Control. 31: 77-107. SQK Accountancy (2015). The importance of management accounting education on SME performance. Available [Online] from http://sqkaccountancy.co.uk/the-importance-of-management-accounting-education-on-sme-performance/ [Accessed 6 May 2017] Read More