Management accounting Essay Example | Topics and Well Written Essays - 1250 words

Management accounting - Essay Example Some managers and staff workers in the organisation are being evaluated using the income statement,balance sheet and the statement of cash flows as benchmarks.Some managers use the balance sheet to determine if all the customers have already paid their dues on timeSome 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.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 y ear 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