Management accounting - Essay Example

Management Accounting (Balanced Scorecard) INTRODUCTION: Some managers and line and staff workers in the organisation are being evaluated usingthe income statement, balance sheet and the statement of cash flows as benchmarks. Likewise, Some managers use the balance sheet, income statement and statement of cash flows to determine if all the customers have already paid their dues on time. Some managers would stop sending goods on account to customers who have large over due receivables. In addition, some companies use different tools or criteria to determine if the managers have been doing profitably or beautifully. The following paragraphs will explain in detail this introductory. QUESTION 1 First, the management team has a problem with its working capital. working capital is arrived at by subtracting total current assets from total current liabilities. The total current assets include cash on hand, cash in bank and petty cash funds. The current assets also includes accounts receivable as well as notes receivable. The current assets also includes inventory end generated from current year purchases and beginning of the year inventory count. One problem in this situation is that the management team has a lot of write -offs. This simply means that the company has not been able to collect the receivables from the clients for one reason or another. Write offs are done only if the possibility of collecting the receivables is impossible because of the customers' bankruptcy, transfer to another location so that collection of the account owed by the customer cannot be pursued. The write offs result to a reduction in the accounts receivable. a reduction in the accounts receivable results to a reduction in the current ratio. A reduction in the current ratio indicates that the company is not doing well in terms of the balance sheet presentation for the current year. Likewise, the collection of only fifty percent of the amount collectible shows that the management team has lost fifty percent of its receivables amount. There are two ways to treat this lack of payment by the customer. One way is to record the fifty percent payment as a debit to cash and a credit to accounts receivable. The management then retains the remaining fifty percent uncollected accounts receivable from the disgruntled employee in the current assets section of the balance sheet. This would not result to an increase or decrease in the current assets portion of the balance sheet for the year (Fazzari 1993, 328). This would be a good accounting procedure to follow because it is what is the normal process as stated in the international accounting standards. On the other hand, a conservative approach to this situation would be to record the fifty percent payment from the unsatisfied customers as full payment of the original amount contracted. This would give us a reduction in the accounts receivable. Consequently, this would result to a decrease in the working capital of the management team. This will not give a good impression of the management team. The head of the management team was completely surprised when he or she received the fifty -percent payment. The surprise was due to the management team leader's expectation that the management team would receive the entire one hundred percent of the job done. The management team leader had to console himself or herself that the lack of payment was because the customer was dissatisfied with their job. The customer explained that the management team was not paid the entire management consultancy fee because the management team did not reach its pre -agreed targets. The profit center manager who is also the head of the management team feels that his department should not be dependent another department to save it from financial distress. The profit center manager is tasks to produce his or her department's income statement and balance sheet. Here, the profit center (may also be called a department must not ask for dole -outs or free rides from the other departments within the entire business organization. The situation here is that the profit center manager should not strive harder to improve his or her financial analysis preparation (Smith 1998, 21). QUESTION 2 The traditional management accounting system focuses on the balance sheet and income statement. the balance sheet is composed of the assets, liabilities and the stockholders' equity. The income statement is composed of the net revenues, cost of sales, the marketing and administrative expenses, the other revenues and expenses that include interest income and interest expense and the net profit or net loss. The statement of cash flows includes the total cash inflows and the total cash outflows. The difference between the two is net cash inflows or net cash outflows (Mcmenamin 1999, 29). The weakness of this traditional style of management accounting is that the managers focus only the these three financial statements. Likewise, the balance sheet, income statement and the statement of cash flows are historical records of what had happened to the business during the past month, quarter, semi -annual or yearly accounting period. The new management accounting system incorporates the non -financial data in its day to day decision making activities. One such decision making data is company's secret database on the current customers as well as potential or future customers. Likewise, the balance score card indicated that the employees of the company are important items in the decision making activities of the business (Mathews 1998). For example, employees that are experts in their job can produce more goods. The highly skilled or experienced factory worker can produce more than the average person's output. However, the highly skilled factory workers would demand a higher salary than their fellow workers in the factory because their fellow workers are greenhorns on the job. The new factory workers have to still learn their new jobs. Thus, the slowness of the new employees would translate to lesser products being displayed on the store. The slowness of the products being produced and displayed on the store shelves would translate to an opportunity lost (Dorgan, Dowdy, and Whawell 2001, 129). In addition, the customers are the primary reasons for the increase, decrease or fixation of the sales for the current year, prior year, and the future years. The customers will buy more of the products only if the product has been visible to them. The management of the company must find ways to attract the current customers as well as the new or prospective customers to patronize the company's products. In addition, the company must also include in its decision making activities other factors. One of the factors is the supplier of the company. The company cannot produce the customers' requirements if the company's suppliers will not be able to deliver on time the raw materials and other spare parts needed to produce the requirements of the customers. Likewise, the managers must also take into consideration that the company must comply with all environmental laws of the land. A violation of the environmental laws would result to the government's closing down the company. The other factors that must be included aside from the normal balance sheet include the community itself. For, the community is interested to know if the company will hire them to work in its factories. The hiring of the local residents by the company would translate to increase sales because the local residents would have the purchasing power to buy the company's products. In the end, the traditional style of management would be less preferable when compared to implementing the balanced scorecard system at work (Meyer 2002, 4). QUESTION 3 Management Employment contracts should be results oriented. A results -oriented contract usually pays and retains a marketing manager or the like based on quotas and the meeting of monthly or other periodic benchmarks. Normally, the marketing manager is paid a commission for generating sales over and above the sales quota assigned to them. Normally, the sales quota is set up in a brain -storming free for all session where the sales managers, the production managers and the higher echelon officers meet("Sales Promotion Rules Look" 2005, 36). Most managers will be very happy if they receive a commission, and other fringe benefits. On the other hand, a marketing manager would not have as much energy to increase sales because he or she does not receive any sales commission. Likewise, management must not only focus on the financial statements as a basis for grading the performance of the manager. Another criteria that is equality important in grading a manager or field officer is the use of peer review. Here, the subordinates and and fellow managers will evaluate the manager in terms of his rapport with the subordinates and other human beings in the organization. Likewise, the manager can also be evaluated based on his tardiness or absences from work. In short, managers and employees should not only be evaluated for promotion, salary increase or other internal movements in the organization on the balance sheet, income statement and statement of cash flows but also on non -financial accounting data (Ladd 1999, 333). CONCLUSION: Definitely, some managers and line and staff workers in the organisation are being evaluated using the income statement, balance sheet and the statement of cash flows as benchmarks. Obviously, Some managers use the balance sheet, income statement and statement of cash flows to determine if all the customers have already paid their dues on time. Surely, some managers would stop sending goods on account to customers who have large over due receivables. Evidently, some companies use different tools or criteria to determine if the managers have been doing profitably or beautifully. The following paragraphs will explain in detail this introductory. Works Cited Dorgan, Stephen J., John Dowdy, and Peter Whawell. 2001. Better UK Productivity: An Inside Job. The McKinsey Quarterly : 129. Fazzari, Steven M. 1993. Working Capital and Fixed Investment: New Evidence on Financing Constraints. Rand Journal of Economics 24, no. 3: 328-342. Ladd, Gary W. 1999. Peer Relationships and Social Competence during Early and Middle Childhood. Annual Review of Psychology : 333. Mathews, Audrey. 1998. Diversity: A Principle of Human Resource Management. Public Personnel Management 27, no. 2: 175+. Mcmenamin, Jim. 1999. Financial Management: An Introduction. London: Routledge. Meyer, Marshall W. 2002. Rethinking Performance Measurement: Beyond the Balanced Scorecard. Cambridge, England: Cambridge University Press. Pratto, Felicia. 1991. Control, Emotions, and Laws of Human Behavior. Psychological Inquiry 2, no. 2: 202-204. Sales Promotion Rules Look Set to Be Relaxed. 2005. The Journal (Newcastle, England), March 10, 36. Smith, Ronald S. 1998. Profit Centers in Industrial Ecology: The Business Executive's Approach to the Environment. Westport, CT: Quorum Books. Read More