Professional Documents
Culture Documents
MANAGEMENT ACCOUNTING
The process of maintaining, extracting reporting, and analyzing an organization's
financial data for decision-making is known as management accounting. Based on the study
and interpretation of financial information pertaining to the internal operations of the
organization, management accounting aids managers in developing plans, changing course,
and making knowledgeable decisions. A virtual tool called management accounting assists an
organization's leaders in directing it toward accomplishing its objectives. Accounting for
management involves analyzing, interpreting, and providing management with information. It
aids non-accounting employees in comprehending and comprehending financial information
within an organization.
Business decisions ought to be supported by data and facts. A lot of the day-to-day
transaction information for a business is too little and intricate to be understood at a glance.
In order to provide critical answers, management accounting derives reports and insights
from actual data. Therefore, managerial accounting facilitates decision-making based on
actual accounting facts. Examining historical patterns and the effects of prior choices is also
beneficial.
Management accounting allows you to:
Set and achieve your business goals, see what real results the company has achieved
Predict company profits, prevent cash gaps, plan payments
Find growth points for the company, detail profit and loss and find out where you can
save
Save time getting financial data in any context with automation
Get convenient and understandable business reporting in real time
Budgeting and its purpose. Budgeting is the process of developing, implementing and
implementing budgets. Which determines the current available capital, provides cost
estimates, and forecasts revenue streams. With a budget in mind, businesses can measure
efficiency against costs and ensure that resources are available for initiatives that support
business and growth.
Accounts receivable and its purpose. These are the funds that customers owe your
company for invoiced products or services. The total value of all receivables is shown on the
balance sheet as working capital and includes invoices due from buyers for goods or work
performed for them on credit.
Accounts payable and its purpose. The accounts payable department is responsible
for keeping track of exactly what is owned by vendors, ensuring that payments are properly
approved, and processing payments. Accurate accounts payable information is essential for
an accurate balance sheet.
Their influence: We combine our business and policy expertise, sustainable business
practices, data, capital and global presence to advance solutions that drive inclusive economic
growth.
What they do: They are committed to working for the benefit of all communities.
Through continuous investment, business initiatives and philanthropic commitments, we are
committed to helping employees, customers, customers and communities grow and prosper
sustainably – with opportunities for all. Through investments and initiatives to support and
advance the Black, Hispanic, and Latino communities, we make economic opportunity more
equitable and affordable.
Their ideas: They invest in research and ideas that help inform and advance political
solutions that support the path to racial justice.
P3 (SOLE TRADER)
Peter Traders
Trading, Accounting
For the year ended 31st March, 2021
Particulars Amount Particulars Amount (AED)
(AED)
Opening stock 20 000 Sales 250 000
Wages 36 500
To Gross Profit
total 128 000 128 000
267 000 Total 267 000
Balance Sheet
As on March 31 2020
Balance Sheet
As on 31th March, 2019
Particulars Amount (AED) Particulars (Assets) Amount (AED)
(Labilities)
Capital of Roma Fixed Assets
50 000 95 510
Add: Net Profit Motor Vehicles
45 510 50 000
Capital of Mona 95 510 Less: 5% 47 500
50 000 depreciation (2 500)
Add: Net Profit Premises 78 000
45 510
Current Liabilities Current Assets
Creditors 84 000 Closing Stock 80 000
Less: Reserve for Debtor 84 000
Discount on 81 480
Creditors (2 520)
Outstanding Salaries 3 066 Add: Additional
6 000
80 066
Outstanding Wages 4 000 Less: Further Bad-
Debts (4 000)
Outstanding Rent 3 200 Less: Reserve for
Doubtful Debts
(4 300)
Interest on Provident 2 800 Less: Reserve for
Fund Investment Discount on Debtors
(1 624)
Provident Fund 50 000 Provident Fund 50 000
Investment
335 566 335 566
P4
Now I will use organization that I choice – JPMorgan Chase & CO
JPMorgan Chase & Co. is a Delaware-incorporated, New York City-based
international financial services business. By market capitalization, it is the biggest bank in the
US and the biggest bank globally.
Income Statement
Balance Sheet
I WILL DO CALCULATION FOR 2 YEARS, FOR 2021 AND 2022
PROFIBALITY RATIOS
Net Profit Ratio = Net Profit/Revenue
2021 = 48 334 000/121 685 000 = 40%
2022 = 37 676 000/ 128 641 000= 29%
In 2021 it was 40% and by 2022 this percentage has decreased by 11%, which
amounted to 29%. This negatively affects net profit, lowering the net profit margin for the
company.
Gross Profit Ratio = Gross Profit/Revenue
JPMorgan Chase gross profit for the quarter ending December 31, 2022
was $34.547B, a 18.08% increase year-over-year.
JPMorgan Chase gross profit for the twelve months ending December 31, 2022
was $128.695B, a 5.79% increase year-over-year.
JPMorgan Chase annual gross profit for 2022 was $128.695B, a 5.79% increase from
2021.
Return on investment = Net Income/Total Equities
2021= 48 334 000/294 127 000=16%
2022 = 37 676 000/292 332 000 =12,8%
JPMorgan RIO for the quarter ending December 31, 2022 was $34.547B, a 18.08%
increase year-over-year.
JPMorgan Chase gross profit for the twelve months ending December 31, 2022
was $128.695B, a 5.79% increase year-over-year.
JPMorgan Chase annual gross profit for 2022 was $128.695B, a 5.79% increase from
2021.
LIGUIDITY RATIOS
Current Ratio = Current Assets/ Current Liabilities
2021 = 3 743 567 000/3 449 440 000 = 1,09%
2022= 3 665 743 000/3 373 411 000 = 1,08%
Acid Test Ratio - This is not applicated, because it is a bank
Working Capital Ratio = Current Assets/ Current Labilities
2021 = 3 743 567 000/3 449 440 000 = 1,09%
2022= 3 665 743 000/3 373 411 000 = 1,09%
EFFIENCY RATIO
Account receivable Turnover = Net Credit Sales/Average Accounts
Account Receivable Turnover in day
JPMorgan Chase annual change in accounts receivable for 2022 was $-4.428B, a
81.44% decline from 2021. JPMorgan Chase annual change in accounts receivable for 2021
was $-23.852B, a 164.26% increase from 2020. (www.macrotrends.net, n.d.)
Inventory Turnover and Inventory Turnover in day are not applicated, because
it is a bank
A bank's balance sheet is different from that of a typical company. You won't find
inventory, accounts receivable, or accounts payable. Instead, under assets, you'll see mostly
loans and investments, and on the liabilities side, you'll see deposits and borrowings.
Fixed Asset Turnover = Total Revenue/ Fixed Asset
2021 = 121 685 000/ 27 020 000 = 4.5%
2022 = 128 641 000/ 27 734 000 =4.6%
INVESTMENT RATIO
Debt to Equity = Total Liabilities/ Total Equities
2021 = 3 449 440 000/294 127 000 = 11,7%
2022 = 3 373 411 000/292 332 000 = 11,5%
Return on equity = Net Profit/Total Equity
2021 = 48 334 000/294 127 000 = 16,4%
2022 = 37 676 000/ 292 332 000 = 12,8%
P6
Cash Budget
April May June
Cash and Bank 15 000 26 700 35 700
Balance
Cash inflow
Cash Sales (20%) 18 000 17 000 16 000
Cash Collection from 66 000 70 000 66 000
Debtors
Total Cash Inflow 99 000 113 700 117 700
Cash Outflow
Cash Purchases 5 000 4 500 3 500
(10%)
Payment to Creditors 37 800 45 000 40 500
Wages 23 000 22 000 19 000
Rent 500 500 500
Expenses 5 500 6 500 5 000
APRIL:
Cash Sales
90 000*20% = 18 000
Cash Collection from Debtors
March: 75 000*80% = 60 000
April: 90 000*80% = 72 000
Half is collected in month of April: 60 000*50% = 30 000
Half is collected in month of April: 72 000*50% = 36 000
Total Collection from Debtors = 66 000
Cash Purchases
50 000*10% = 5 000
Credit Purchases payment
March Credit Purchases Payment in the month of April: 42 000*90% = 37 800
Wages
March half Wages paid in April: 22 000*50% = 11 000
April half Wages paid in April: 24 000*50% = 12 000
= 23 000
MAY
Cash Sales
85 000*20% = 17 000
Cash Collection from Debtors
April: 90 000* 80% = 72 000
May: 85 000*80% = 68 000
Half is collected in month of April: 72 000*50% = 36 000
Half is collected in month of May: 68 000*50% = 34 000
Total Collection from Debtors = 70 000
Cash Purchases
45 000*10% = 4 500
Credit Purchases Payment
March Credit Purchases Payment in the month of April: 42 00*90% = 37 800
Wages
March half wages paid in April: 22000*50% = 11 000
April Half wages Paid in April: 24000*50% = 12 000
= 23 000
JUNE
Cash Sales
80 000*20% = 16 000
Cash Collection from Debtors
May: 85 000*80% = 68 000
June: 80 000*80% = 64 000
Half is collected in month of June: 68 000*50% = 34 000
Half is collected in month of April: 64 000*50% = 32 000
Total Collection form Debtors = 66 000
Cash Purchases
35 000*10% = 3 500
Credit Purchases Payment
May Credit Purchases Payment in the month of June: 45 000*90% = 40 500
Wages
May Half wages Paid in June: 20 000*50% = 10 000
June Half wages Paid in June: 18 000*50% = 9 000
= 19 000
P7
BENEFITS AND LIMITATIONS OF FIXED BUDGET
A fixed budget is a financial document that remains unchanged throughout an entire
fiscal period, regardless of any unforeseen or unplanned events. In contrast, flexible or
variable budgets fluctuate from time to time based on fluctuations in spending. The
advantages of a fixed budget are greater stability, increased savings, and simplified future
planning, while the disadvantage is less flexibility.
A fixed budget prevents an individual or business owner from adjusting the budget in
response to a changing circumstance, such as the loss of a job or a decline in profits. This
makes it particularly difficult to respond to the types of unexpected changes that typically
occur in business and in life. Due to this, the majority of large conglomerates favor flexible
budgeting over fixed budgeting. (Smart Capital Mind, n.d.)
BENEFIRS AND LIMITATIONS OF ZERRO-BASE BUDGET
Zero-base budgeting helps a business allocate resources efficiently (by department)
because it disregards historical budget figures in favor of actual numbers; A zero base budget
compensates for weaknesses in incremental budgeting for budget inflation.; Communication
and coordination By involving employees in the decision-making process, zero-based
budgeting promotes improved departmental coordination and communication, as well as
employee motivation; Eliminating all redundant or unproductive activities, this strategy leads
to the identification of optimal opportunities and more cost-effective methods of conducting
business.
The basis of zero-based budgeting is churning labor force. This concept's budget is
planned and drafted from scratch, requiring the participation of a large number of employees.
There may be insufficient human resources and time in many departments; This zero-base
budgeting method requires more time for annual execution than the step-by-step budgeting
method, which is significantly simpler; Deficit in Experience: Providing explanations for
each item and cost is problematic and management training is required. (ClearTax, 2019)
BENEFITS AND LIMITATIONS OF ROLLING BUDGET
Planning and Control: A rolling budget allows for more precise planning and control.
Consequently, it reduces budgetary uncertainty. Rolling budgets are short-term, not long-term
plans. This allows management to predict the company's future sales and profitability;
Adapting to alteration: A budget covering 12 months can be considered a long-term budget.
This is because of technological advancements. Technology evolves at a rapid rate. This may
prompt the organization to adopt new technologies. The budget must also be revised in light
of assumptions; Spend wisely: Managers have a tendency to spend more money, even when it
is not required. In contrast, a subordinate manager may be required to invest in identified
opportunities. It serves as a guide for spending money wisely.
This requires additional effort, time, and resources. Employees devote many hours to
budget preparation; Employees can become demoralized if they perceive that budget targets
are constantly changing. Spending a great deal of time preparing a budget can demoralize
employees; Uneven Update: The biggest drawback of rolling budgets is that they are not
updated throughout the entire period. Only the increment period is updated. In contrast, the
incremental period may contain new assumptions. These assumptions are not accounted for
in the budget's original proposal. (https://www.facebook.com/boradsanjay, 2018)
BENEFITS AND LIMITATIONS OF INCREMENTAL BUDGET
Incremental budgeting does not require complex calculations or in-depth analysis by
finance or accounting professionals. This type of budgeting, however, requires only a few
assumptions. Stability: Incremental budgets work well for businesses with primarily static
expenditures because this method of budgeting ensures funding stability over longer time
periods. Consistency: Because incremental budgeting relies on data from the prior period, it
ensures that your total budget remains constant over time.
Supplemental budgets are adjusted annually based on department needs, so it is not
uncommon for departments to spend as much of their budget as possible in order to receive
more funding in the following fiscal year. When new budgets are based on the numbers and
line items of previous budgets, there is little room for funding innovative ideas. Custom
campaigns are discarded due to a lack of funds to invest in innovation. One of the primary
assumptions underlying incremental budgets is that your company's operations will remain
largely unchanged (i.e., they experience continuous stability). (www.mosaic.tech, n.d.)
BENEFITS AND LIMITATIONS OF MASTER BUDGET
Master budgets collects all the smaller budgets and compiles them into one
overarching budget. The benefit of this kind of budget is that it gives an overview of the
company’s budget and reveals how much the company is earning and spending as a whole. It
also has the advantage of having the ability to identify problems and plan ahead.
The limitations are the lack of specificity as you wouldn't be able to determine how
much does departments are spending on a monthly basis as the amount will be added to all
the other departments spending as one sum. Another disadvantage is that it is difficult to
update or read and understand. (The Advantages of Bottom-Up Budgeting, 2022)
BENEFITS AND LIMITATIONS OF FLEXIBLE BUDGET
A variable budget provides organizations with a more precise view of their budgets in
the event of fluctuating costs and profit margins. Possibility to increase earnings: Variable
budgets, unlike static budgets, adapt to increased sales. Consequently, as a company's
revenue increases, it may be in a better position to decide where to improve marketing
initiatives or other activities. Economy in budgeting: With a variable budget, it is simpler to
modify a budget that has not yet been finalized in terms of income or other variables.
Complicated Tax Calculation: The difficulty in estimating an organization's tax
liability is a disadvantage of variable budgets. In order to avoid accruing interest, many
organizations transfer cash to the tax authorities on a quarterly basis as opposed to at the end
of the year. When a company cannot predict its future earnings, it may be difficult for it to set
aside sufficient funds to cover its tax obligations. Because variable budgets contain numerous
estimates, budget preparation can be more difficult and time-consuming than for a static
budget. A fixed budget requires elementary mathematics, whereas a variable budget
necessitates algebra. (Ocean Financial Centre, Singapore 2023)
BENEFITS AND LIMITATIONS OF PLANING ANG CONTROLING
Budgetary control and planning is the comparison of diverse action revenues and
expenditures to budgeted amounts. The advantages are that it maximizes profits To
accomplish this objective through proper planning and coordination of various functions. The
operations of various departments and industries are effectively coordinated. All efforts are
combined to achieve the organization's common objective. The variances between planned
and actual performance will permit the identification of weak spots. The budgetary control
plays an important role in reducing production costs in order to increase sales.
The limitations are the unpredictability of the future, as the forecasts may not always
be accurate. Revision of the budget is required. Budgetary control depends on coordination
between departments; therefore, a lack of coordination between departments leads to poor
performance. Budgetary Control may cause functional departmental conflicts. Budgetary
System is dependent on the support of top management, as its collapse would result from a
lack of support. (Sona, 2022)
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