Management Accounting Systems Quiz

Computerized Accounting Applications

• This is a course on computerized accounting applications (AC 203)
• Management Accounting Systems is a topic within the course
• The course was taught by Dr. Patrick Mbwile at the University of Dar es Salaam Business School on November 17, 2022

Management Accounting Systems

• Information flows in two directions in managerial accounting
• Top-down flow: Originates from top management, including strategic directives, company-wide goals, budget allocations, performance benchmarks, policy changes, and governance decisions. An example is a company's shift towards sustainability reporting.
• Bottom-up flow: Information from lower levels of the organization, including operational data, transactional input, feedback on departmental performance, cost and revenue data, and front-line sales data. This data is used in financial planning and adjusting budget forecasts.

Bidirectional Communication

• Integrated systems allow for real-time reporting and quick responses to both top-down and bottom-up information.
• Cloud-based accounting software facilitates dynamic cross-departmental collaboration and decision-making.

Organizational Structure

• The organizational structure provides the environment through which information flows for a management accounting system (AIS) to function successfully.
• It must structure the organization so each segment is distinguishable.
• A clear statement of authority and responsibility must be issued for each manager and segment.
• Each employee must report to only one higher-level manager.
• Clear superior-subordinate relationships should be defined by top management.

Policy Statements

• Policy statements outline management's expectations regarding employee behavior and provide guidelines for carrying out job duties.
• Common statements include Financial Regulations and Accounting Manuals, and codes of conduct/ethical guidelines.

Data Accumulation

• Responsibility accounting systems facilitate top-down and bottom-up data flows.
• The system provides performance reports summarizing budgeted costs and revenues for top-down flow, and actual costs and revenues for bottom-up flow.
• The system accumulates data through classification and coding processes.

Classification

• Classification is when a system organizes transactions by responsibility centres and by account from the chart of accounts.
• An example is grouping TShs. 910,000 in labor costs for production department A. Manual and computer-based systems can handle this differently.

Coding

• Coding assigns a combination of characters to transactions that distinguish the classifications to which they belong, often using a Chart of Accounts.
• The overall goal of coding is to provide informational support for decision-making.

Advantages of Coding in AIS

• Concisely representing large amounts of complex, otherwise unmanageable information
• Providing a means of accountability for the completeness of transactions
• Identifying unique transactions and accounts within a file
• Supporting the audit function by providing an effective audit trail

Coding Techniques

• Codes should be consistent with their intended use.
• Codes should allow for growth in the number of items.
• Simplicity in coding systems to minimize costs, ease memorization, and gain employee acceptance.
• Codes should be consistent across the organization and all divisions

Classification Cont.

• Responsibility accounting systems classify transactions based on the proper account in a chart of accounts and the responsibility centre.
• Appropriate account and responsibility codes are used

Responsibility Codes

• Codes distinguish each responsibility centre from others in the organization's chart.
• The more zeros in the code, the higher the level of the responsibility centre in the organization.

Accounting Codes

• Each account in a financial AIS has a unique accounting code.
• These codes help to identify individual accounts within the chart of accounts for each responsibility centre.

Budget Codes

• Budget codes work similarly to account codes, but the designer includes an additional digit to distinguish between budgeted and actual amounts.
• An example uses digit '0' for actual and '9' for budgeted amounts.

Sequential Codes

• Unique identifiers assigned to data items in a sequence.
• Accountants typically use them for documents like cheques, sales and purchase orders, or invoices.
• They help to track and prevent unauthorized use of documents.
• However, they are less flexible than other types.

Block Codes

• Designers reserve a set of adjacent numbers for future expansion in a classification or chart of accounts.

Group Codes

• Group codes are an extension of block codes, where the position of each character has significance.
• This creates a more complex system that gives context to the individual position.
• These codes allow for flexibility in adding and deleting items and re-assigning meaning

Mnemonic Codes

• These combine letters and numbers to aid memory for identifying data items.
• These are beneficial for minimizing errors.
  • However, numerous similar items can cause confusion due to similar mnemonics

Additional Notes

• Coding structures aid in classifying, summarizing, and retrieving data.
• Coding systems should adapt to changes in a company's needs (employee code becoming insufficient with increases in employee count.)
• Different data coding systems are needed to generate equivalent comparable information, causing systems to overlap. Redundant systems can make accounting inefficient

Quick Review

• Responsibility Centres are organizational units where a manager manages financial information, such as cost and profit centres.
• A Chart of Accounts is a list of accounts used to define classes of items for which money or goods are spent or received.

Quick Review (Additional)

• Items in a sequence are numbered consecutively.
• Blocks use a range of contiguous numbers associated with a category e.g., 10000-19999 = Electric Range

Quick Review (More Additional)

• Group codes have different meanings in each position.
• Mnemonic codes use letters and numbers that are easy to use and remember by clerks.
• Charts of accounts are a type of block coding with a list of ledger accounts.

Review Questions

• Review questions from Chapter 2 in Boockholdt's book regarding codes.