Management Accounting at J Sainsbury plc


Term Paper, 2008
12 Pages, Grade: 1,3

Excerpt

Table of Content

Executive Summary

Introduction

Management Accounting versus Financial Accounting

Merits and Disadvantages of Management Accounting

Priorities in Management Accounting for J Sainsbury plc
Costing
Management of Working Capital
Budgeting

Conclusion

Appendix

Glossary

Bibliography

Executive Summary

Management accounting in contrast to financial accounting has a clear internal focus trying to support the managers’ decision-making process. When accurate information from management accounting is available it is perceived to be a very helpful source in making business decisions. However, it is costly to run a high-level accounting system and often managers do not see the benefits in it.

In this report, we suggest three main areas of improvement for J Sainsbury plc within the management accounting department as they turned out not to be effectively set up with regards to the company’s goals:

1. Sainsbury’s activity-based costing system has to be adjusted in order to enable competitive pricing in the current market environment.
2. We see potential of cost savings in the management of inventory although a clear focus on customer satisfaction has to be retained.
3. The existing budgeting system should be used to develop an individual reward scheme for Sainsbury’s employees based on a revised performance measurement system. This will ensure high employee motivation which is recognised as one of the major keys to the company’s success.

With these steps, we believe that J Sainsbury plc can maintain its current growth and achieve its goals defined in the ‘from recovery to growth’ plan despite all economic difficulties.

Introduction

J Sainsbury’s plc currently faces tough competition and a clear economic decline. It is therefore essential for the company to review its main internal activities and identify areas of possible savings. This report is designed to analyse management accounting and its importance for J Sainsbury’s plc and to propose priorities for spending on management accounting in the context of the current market situation and the company’s three-year targets of the ‘from recovery to growth’ plan. Firstly, we will compare management accounting and financial accounting and then briefly outline the merits and disadvantages of management accounting to J Sainsbury plc. With this theoretical background, the report identifies three major areas of management accounting for prioritisation based on a fundamental analysis of J Sainsbury’s main activities and goals.

Management Accounting versus Financial Accounting

The aims and objectives of management accounting and financial accounting have been broadly discussed and compared in the literature. Drury (2005) as well as Atrill and McLaney (2002) classify major differences in the:

- legal requirements and accounting principles,
- focus and nature of the reports,
- level of detail,
- time dimension and frequency and
- range and quality of information.

Financial accounting is subject to legal requirements and is prepared under generally accepted accounting principles. The main users are external groups who have an interest in the financial information of the company (such as owners, competitors, investment analysts etc.). Therefore, the focus of the reports is on the business as a whole with an aggregated level of detail and information of a monetary background. Financial accounting reports are mainly focusing on past performance – although having some aspects of future outlook as well – and they are usually prepared annually, semi-annually or quarterly.

In contrast to that, management accounting pursues different aims and objectives: The preparation of management accounting reports is voluntary and aims at internal managers to support their decision-making process. Information within the reports can be highly detailed and usually focuses on a specific part of the business. While they can include information on a monetary basis they are also used to analyse the company’s non-financial aspects such as inventory and output. Since used for the decision-making process, the main focus of the reports lies on information about the future. The frequency of the reports does not necessarily have to be regular.

Merits and Disadvantages of Management Accounting

In general, management accounting is perceived to be very important for managers in their decision-making activities. Atrill and McLaney (2007) state that based on several surveys, most of the managers rank management accounting as one of the most helpful sources of information for their decision-making process. The data acquired can give a detailed view on activities and projects of the business as information is specifically prepared for a certain purpose and a clearly defined user group. This is an important aspect for J Sainsbury plc in pursuing its ‘from recovery to growth’ plan.

[...]

Excerpt out of 12 pages

Details

Title
Management Accounting at J Sainsbury plc
College
Lancaster University
Grade
1,3
Author
Year
2008
Pages
12
Catalog Number
V174203
ISBN (eBook)
9783640945375
ISBN (Book)
9783640945573
File size
576 KB
Language
English
Tags
management, accounting, sainsbury
Quote paper
Jonas Augustin (Author), 2008, Management Accounting at J Sainsbury plc, Munich, GRIN Verlag, https://www.grin.com/document/174203

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