Introduction

Management accounting or managerial accounting refers to the process of identifying,

collecting, and analyzing both financial and non-financial data within an organization that
aids in internal decision-making. Management accounting varies from financial accounting as
the latter focuses on financial information analysis and is guided by fiscal policy and
government standards (Weetman, 2019). Management accounting is only used by the
management team for various purposes within the organization and is not disclosed to people
or organizations outside management.

There are various management accounting systems and their requirements vary as detailed
below. Product costing and valuation is a managerial accounting system that focuses on
determining the costs involved in the production of goods and services (Weetman, 2019). A
breakdown of costs into subcategories such as variable, fixed, direct, and indirect costs is
crucial for this system. Managerial accountants calculate the overhead costs associated with a
certain product to ascertain the expenses incurred. A crucial aspect of the product costing and
valuation system is marginal costing that aids in the valuation of goods.

Cash flow analysis is another method of management accounting that enables the
determination of the impact of business decisions on cash. A managerial accountant focuses
on the impact of a specific decision on cash inflow or outflow in the business in this system
(Reza, Kusumaningrum, and Edi, 2017). Inventory turnover analysis is vital and is essentially
the calculation of how often an organization has sold and replaced inventory within a given
period (Amanda, 2019). A management accountant seeks to particularly establish the carrying
cost of inventory, the expense of unsold items on the company.

Constraint analysis seeks to establish existing constraints within a production line or sales
process (Amanda, 2019). This method is specific to either of the mentioned components.
When a management accountant focuses on challenges within the production line, they may
identify difficulties that are responsible for diminished profits and increased losses within the
company. Challenges within the sales process may vary from difficulties related to the
company or difficulties that are specific to the clients.

Financial leverage metrics is another method of management accounting that refers to a

business entity’s use of borrowed capital. The borrowed capital can be invested in acquiring
additional assets or increasing return on investment (Amanda, 2019). This system includes a
balance sheet analysis that can offer valuable insights into company debt and equity.
Performance measures that are relevant in this case include return on equity, debt to equity,
and return on invested capital.

Accounts receivable (AR) management is an additional method of management accounting

and affects a firm’s bottom line. It enables a company’s management to decide on whether a
certain customer is becoming a credit risk (Amanda, 2019). This method focuses on how long
a client takes to pay their debt and it is classified based on time. Grouping different clients on
this basis enable decisions on which clients the company should consider dropping.
Budgeting, trend analysis, and forecasting is the final method of management accounting that
will be analyzed in this report. Deviations from budgetary plans indicate flaws within the
plans made by the company. An analysis of trends enables the prediction of future business
possibilities while forecasting enables the setting of targets.