Accounting Assignment: Implication of Managerial Accounting in SME
Task: Write an accounting assignment addressing the following: • A memo exploring the two research articles on the role of Accounting in SME’s to advise client.
• Implications for Management Accounting and SMEs. • Personal Reflection.
Accounting is one of the most important aspects, which facilitates the business to effectively identify, measure, record, verify and classify and communicate the financial information and transactions. It facilitates the day to day activities of a company. The accounting assignmentwill focus on summarizing the searched articles in an effective manner.
DATE: 28th of March 2020
TO: Paulina Presto
FROM: Associate at LMNOP LLP Accounting
SUBJECT: Information about Accounting in SME’s to advise clients
1) The article “Demand for Management Accounting Information in Small Businesses: Judgment Performance in Business Planning” was written by Dr. David Dearman, Thomas A. Lechner, and Stephen B. Shanklin. The article was published in the International Journal of the Academic Business World, Volume 12, Issue 1, in the year 2018. The keywords that were used to search the article were Management Accounting and Small and/or Medium-Sized Businesses (SMEs).
The increasing need for organizational efficiency within the firm is influencing the management to receive management accounting information. Management accounting is often referred to as financial advice, facts, information, and data, which facilitate the management of the organization to use them and develop the business in a profound manner. The approach aims towards focusing on the operations, outputs, sophisticated strategies, control, planning, and cost of the organization. In addition, management accounting is alwaysbeing considered as the high-value aspect for the entrepreneurs (Dearman, Lechner, &Shanklin, 2018). It is analyzed within the study that management accounting information effectively helps the businesses to make plans in order to determine the adequacy of the resources needed to finance the business operations. The accounting research is much concerned with the accounts related stimuli within the company. From the prior researches, it is often being considered that the various tasks and activities of management and the organization hugely affect the judgment of management accounting. The management accounting task involves various processes such as budgeting or financial planning, which helps the management to make subjective decisions. The paper surveyed the entrepreneurs of small businesses that were identified as well as selected from the client pool of ASBTDC 'Arkansas Small Business and Technology Development Center', which was a firm of consultancy services (Dearman, Lechner, & Shanklin, 2018).It is identified from the data collected within the study that small business firms involve an average of the three owners, along with the median of one. In addition, the study also states that the entrepreneurs of small businesses who have profound knowledge about financial planning and the reparation of business plans are more likely to obtain the required financial resources in an effective manner than those business persons who have low knowledge about finances.
It can be effectively outlined with the study that effective decisions of management towards the financial services facilitate the firm to gain a competitive advantage over the rival firms. The sequential variations in the capitalizations of the business, as well as the financial knowledge of the business persons, are an important moderator of associating the interrelationship between the financial plans and the performance of the company (Dearman, Lechner, & Shanklin, 2018).
2) The article “Activity Based Costing knowledge: empirical study on small and medium- size enterprises” was written by Maria João Cardoso Vieira Machado.The article was published in the journal of RevistaContemporânea de Contabilidadein the year 2012. The keywords that facilitated the search of the article were “Small and/or "Medium Sized” Businesses (SMEs) and Decision Making", "Activity based costing."
This particular article has disclosed the fact that the activity based costing, which is a part of modern management accounting system is not adopted by the small and medium sized companies in Portugal. The main reason that the author has indicated is that the employees in the small and medium sized Portuguese companies do not have the required level of knowledge for adopting the technique of activity based costing. They find the method as difficult and complicated(Machado, 2012).
Focusing on the theoretical framework of the article, it can be stated that the author has indicated that the adoption of activity based costing technique can help the companies in the small medium size segments in controlling their cost level in a better way. At the same time, the author has also indicated the fact that the activity based costing technique can help the managers in avoiding overvaluation of the costs during the process of manufacturing(Machado, 2012). In the study, the author has clearly indicated the fact that activity based costing is better than the normal traditional method of costing. It has increased the scope for management accounting in the small and medium sized companies. From the research, the author has concluded the fact that the usage of activity based costing is limited in the small and medium size firms because of the lack of awareness regarding the same.
While stating about the reasons behind the low usage of activity based costing in the small and medium sized firms, the author has mentioned that academic qualifications played a vital role in making the employees aware of activity based costing. The study showed that the lack of academic knowledge, age level and hierarchical position in the company are the key reasons behind the lack of knowledge about activity based costing in the firms. In the other words, it can be stated that low hierarchical position, lack of higher academic degree and elder age of the employees create barriers for the adoption of modern management accounting techniques like activity based costing in the small and medium sized firms(Machado, 2012). At the same time, the author has also disclosed the fact that individual characteristics of the employees also played their capacity of learning the technique of activity based costing.
Implications for Management Accounting and SMEs
The memo will effectively facilitate Paulina Presto, to disseminate the information of management accounting and decision-making in the context of the SME businesses. The memos involve the details about the usefulness of management accounting for the entrepreneurs of small businesses. It is provided within the study that effective financial knowledge of the business persons helps them to make profound business plans in order to gain a competitive edge over the rival firms. Moreover, they are more likely to become successful than those entrepreneurs who do not have purposeful financial knowledge.
The information about management accounting will help Paulina Presto to make the clients recognize the importance of financial knowledge along with its usage in the company. The memo had also looked forward to address the issues faced by the SME’s in order to analyze the credit risk. The study effectively outlines the purpose of the decision support system within the organization. It will help Paulina to influence the clients to use the decision support system in order to mitigate errors and mistakes in their decisions. The information will help Paulina use the information and make the clients know about the implementation of the latest technologies within the originations. In addition to this, Paulina will also be able to effectively suggest profound strategies to the SMEs, which will ultimately enhance their capability to manage the financial resources of the organization in a profound manner.
Learning, writing, and researching are the most valuable skill, which enhances the capability of the student to perform in the class effectively. The process of finding had helped me to effectively enhance my ability to answer the questions presented in brief in a profound manner. It had helped me to gather effective information about the keywords that will be useful for me while searching the articles.
After researching the articles and finding the most appropriate ones, I intended to learn the articles so that I can effectively acquire knowledge and information, which further helped me to effectively summarize it. It had helped me to inculcate a profound habit to accomplish higher achievements in academics. Moreover, it had also helped me to enhance my high level of critical thinking as well as reasoning skills. The process of learning had helped me to get self-motivated in order to enhance my knowledge in the context of management accounting.
While summarizing the articles, I have effectively enhanced my writing knowledge. Furthermore, I came to know that it is an important part of the communication process. I effectively looked forward to write the entire paper in a profound manner so that I can effectively connect with my reader and can convey my messages, data, and information to them.
It can be concluded from the overall study that management accounting effectively presents the financial information and data to the managers in order to facilitate their decision-making process. Moreover, the decision support system facilitates theentrepreneurs to omit errors and mistakes from the decision in order to make effective strategies and execute them within the organization to avoid credit risk.
Dearman, D., Lechner, T. A., & Shanklin, S. B. (2018). Demand for management accounting information in small businesses: Judgment performance in business planning. International Journal of the Academic Business World, 12 (1), 93-102. https://jwpress.com/Journals/IJABW/BackIssues/IJABW-Spring-2018.pdf#page=99.
Machado, M. J. (2012). Based Costing Knowledge: Empirical study on small and medium size enterprises.Accounting assignmentRevista Contemporânea de Contabilidade, 18 (1), 167-187. DOI: http://dx.doi.org/10.5007/2175-8069.2012v9n18p167