ACCA (MA1)

MANAGEMENT
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BY VERTEX LEARNING SOLUTIONS
VALID UNTIL Dec 2023
 TABLE OF CONTENTS

CHAPTER TOPIC PAGE NO.

1 Nature of Business Organization and Accounting Systems 2

2 Management Information 13

3 Cost Units, Cost Classification, and Profit Reporting 18

4 Management Responsibility and Performance 28

Measurement

5 Source Documents and Coding 38

6 Accounting for Material & Labor Cost 49

7 Overheads 60

8 Job, Batch, and Process Costing 68

9 The Basics of using Spreadsheets 74

10 Using Spreadsheets to present Information 84

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Chapter 1 - Nature of Business Organization and
Accounting Systems

Organization

An organization can be defined as:

“A social arrangement that pursues collective goals, controls its own

performance, and has a boundary separating it from its environment."

Clubs, hospitals, schools, and government agencies are all examples of

organizations.

Office
The office in an organization is a center for information and administration.

Office Departments include.

▪ Finance and accounting

▪ Purchasing goods and materials
▪ Sales and marketing
▪ Wages and salaries
▪ Information technology
▪ Human resources management

These departments enable administrative duties (such as ensuring orders are

placed for materials, and that customers are billed for their purchases, and that
employees are paid their wages and salaries). They also save crucial company
data like which clients owe us money, how many things we have in stock, who
our best customers are, what our most profitable sales are, etc.

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 Which of the following will not be a function of the human resources department?

A. Hiring employees.

B. Firing employees

C. Paying employees.

D. Arranging training of employees.

Correct Answer: C

Typically, the Departments are shown on Organization

Charts.
Functional Departmentation

Divisional Departmentation

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Geographical Departmentation

Product/Brand Departmentation

DECENTRALISED CENTRALISED

Middle and low-level managers have A few upper management members

decision making power. have decision making power.

Authority is given to those who are Authority is given to those who are at
closer to stakeholders. the top of the chain of command.

Organizations are self-sufficient. More standardization.

Faster decision making. More control.

More expensive. Less expensive.

More creativity. Less creativity.

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Policy Manual
A policy manual should help to ensure that all personnel follow procedures and
best practices.

a policy manual will set out the required procedures for all the various functions
of the business. Every employee will be expected to have read the areas relevant
to their functions and the policy manual should always be readily available for
easy reference.

These perform the following important functions:

▪ Advice for employees

▪ Keeping up with operating standards
▪ Training and instruction
▪ How to keep things running smoothly
▪ Uniformity of approach
▪ Maintenance of security
▪ Following the law

Which of the following about policy manuals are true?

(A) It helps to ensure that all personnel follow procedures

(B) It helps to ensure best practices

(C) All businesses are required by law to keep policy manuals for all activities

Correct Answer: A&B

The Main Transactions of a Business

Purchase of Raw Materials:
When more materials are needed, warehouse or production staff usually begin
this. This person usually requests purchases from the purchasing department.
Purchasing will choose the best supplier.

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To ensure accurate delivery, the warehouse must verify the goods against the
entry form. The accounting department will handle supplier invoices.

Sales:
Retail sales begin online or in-store. Payment is generally immediate. The
warehouse should deliver orders, and the accounting department should
invoice customers. The accounting department will track client receivables.
Credit control may call customers to speed up payment.

Paying Employees
Large companies have a wages and salaries department that calculates
payments and handles terminations and hires. The accounting department
handles employee cash transfers after receiving payment amounts.

Paying other Expenses:

Monthly expenses include rent, electricity, phone, and insurance. A newspaper
ad or equipment maintenance may be one-time. The accounting department
handles invoices. This ensures that rates are reasonable and that services are
purchased and delivered correctly.

Purchase of Non-Current Assets

Most of the time, an employee makes a purchase request, like for a new printer,
which is then approved by a manager or the company accountant.

When the invoice comes in, someone needs to check that the asset has been
received and is working properly.

The Need for Effective Control over Transactions

Errors, unauthorized transactions, and fraud are common in big companies with
thousands of transactions. Thus, transaction control is crucial.

Internal control is the transaction control system. All transactions should be

authorized, fully documented, and correctly reported.

The segregation of responsibilities is an important part of internal control.

Transactions are divided into stages and handled by different people. Thus, one
person orders, another receives and checks, and a third pay for products.

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Other controls include getting signatures to approve amounts, keeping track of
totals to make sure, all transactions have been processed, and looking for
mistakes by putting documents in order.

The Principles and Practice of Double-Entry Bookkeeping

The main idea behind double-entry bookkeeping is that for every transaction,
there are always two entries. One is called a "credit entry," and the other is called
a "debit entry."

Most of the time, the entries are shown in "T" accounts:

Account name

Debit (DR) side Credit (CR) side

Increase in an asset. Decrease in an asset.

Increase in an expense. Decrease in an expense.

Here are some simple, common transactions:

Purchase of office stationery for cash A cash sale

Dr. Cash (increase in an asset) Dr. Office stationery (increase in an

expense)

Cr. Cash (decrease in an asset) Cr. Sales (increase in income)

A credit sale Payment by a customer of an amount owing:

Dr. Receivables (increase in an asset) Dr. Cash (increase in an asset)

Cr. Sales (increase in income) Cr. Receivables (decrease in an asset

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Purchases of materials Payment of payables

Dr. Materials control Dr. Payables

Cr. Bank/payables Cr. Bank

Payment of wages Payments of expenses or overheads

Dr. Wages expense Dr. Expenses/overheads

Cr. Bank Cr. Bank/payables

Which of the following statements is correct?

A. A debt entry may increase liability.

B. A debit entry may increase assets.

C. A credit entry may decrease a liability.

D. A credit entry may decrease income.

Correct Answer: B

Ledgers and Prime Entry Records in Integrated and Interlocking

Accounting Systems

Ledger means book. Accounting systems typically have three ledgers:

The general or nominal ledger keeps track of all the "T" accounts, such as wages,
sales, purchases, electricity, travel, advertising, rent, insurance, repairs,
receivables, payables, and noncurrent assets. Due to their size, cash and bank
accounts are usually kept in a separate book.

The payables ledger is also known as the creditors' ledger and sometimes the
purchase ledger. The total amount owed to suppliers is written down in the
general ledger, and details about what is owed to whom are also written down

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here. Each supplier has its own account. The total of the amounts owed in this
ledger should match the payable balance in the general ledger.

The receivables ledger is sometimes called the sales ledger or the debtors' ledger.

The total amount owed by customers is written down in the general ledger, and
details about what is owed by whom are also written down here. Each credit
customer has their own account. The total amount owed in this ledger should
match the total amount owed in the general ledger's receivables balance.

What is the name given to the ledger which contains accounts such as rent,
electricity, travel, non-current assets, etc.?

A General or nominal ledger

B Payables ledger

C Receivables ledger

D Purchases daybook

Correct Answer: A

Transactions are initially Recorded in Prime Entry Records (or Books of

Prime Entry).
Records include:

▪ Cash book: which tracks bank account deposits and withdrawal.

▪ Petty cash book: which tracks tiny cash payments for daily costs like postal
stamps and workplace tea or coffee.
▪ Sales daybook: credit customer invoices
▪ Purchases daybook: supplier invoices
▪ Journal: where corrections are initially recorded.
▪ Some companies have Sales and Purchase return day books.

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Two different kinds of Information are required in
Manufacturing Businesses:

Financial Accounting Information.

For instance, the sums paid for expenses and salaries. These sums can be seen in
the financial accounts that companies produce each year.

Information about Cost Accounting.

For instance, how much labor and materials are used to manufacture each
good? The company uses this data internally.

So, the same transactions may need to be handled twice for information about
financial accounting and cost accounting.

These requirements have Two Approaches:

An Integrated Accounting System.

Information is recorded once for two purposes. This may save time when
recording but increase effort during the presentation.

An Interlocking Accounting System

keeps financial and costing ledgers separate. Recording takes longer, but
presenting information is easier.

The Functions and Benefits of Computerized Accounting System

Computerized accounting systems should have several advantages over
manual systems:

▪ faster delivery of information

▪ Easy access to information that would be hard to get without a
computerized accounting system.
▪ As soon as the system is set up, information will be cheaper.
▪ Because arithmetic and other errors will be removed, information will be
more accurate.

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System failures and inaccurate data occur occasionally. If data is entered
incorrectly, inaccurate information will be produced (garbage-in, garbage-out,
GIGO).

Know these Key Terms:

File: Similar records. like, a receivables ledger file lists customer.

Record: One entity per record. E.g. a customer record contains all customer
data.

Field: (Also known as an attribute). Each field in a record holds a different piece
of information.

Thus, a customer record includes name, address, phone number, credit limit,
invoices due, etc.

Key field: Unique record identifier. For instance, a part code or employee number.

Character: Characters are normally a–z, 0–9. Sometimes a character is an entire

field. Male or female, for instance.

The Types of Data held can be Broken down into:

1. Transaction Data
This is where information about each transaction is kept, and this
information changes often as transactions are made and finished.

2. Standing or Reference Data

Data that is largely permanent, such as names, addresses, product
descriptions, and pricing, is referred to as standing or reference data.

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Processing can be done in two ways:
Batch Processing:
Transactions are grouped and processed together. Because transactions must
be added up, they take longer to process, so most of the time, the information
in the accounting system isn't up to date.

For instance, if sales transactions were aggregated during the week and routed
to the receivables file on the last day of the week, most customer balances
would be understated. The balances would be correct only after processing.

Real-time, Online Processing:

"Real-time" means files are updated as transactions occur; "online" means files are
always accessible for updating.

Cash machines can check your online bank account to verify if you have enough
money to withdraw. Your bank account updates promptly when you withdraw
money (real-time).

Purchase invoices are entered into an organization’s computer system at the end
of each week. What is this?

A. Batch processing

B. Real-time online processing

C. File maintenance

D. File updating

Correct Answer: A

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