Accounting is possibly the single most important aspect of any organization. Without accurate accounting, no business would be able to survive financially. While there are different types of accounting, we will be looking specifically at managerial accounting. The accounting system for the Kalkaska Public School District is a managerial accounting system. Kalkaska Public Schools is a fairly small district compared to state standards but could be considered one of the medium sized districts in northern Michigan. Considering the financial status of most of the schools districts in Michigan, Kalkaska Public Schools is in a very secure situation with a fund balance of around 33%.

The purpose of using managerial accounting is to allow the managers within the school district to impact budgetary decision. Managerial accounting is a process of identifying and measuring information and relaying that information to the managers so they are able to achieve the goals of the organization. In contrast to managerial accounting, financial accounting is focused on providing financial information to people outside the organization such as stockholders. In the school district it is important for each manager, or principal, in the district to understand the financial status of the district, how they are expected to operate within the given budget and why the budget is what it is. It is also very important for the principals to have a say in what their school’s budget should be and what is needed, such as upgrades or replacements of current equipment. This process realizes that nobody has better information about what is needed than the specific manager in the specific school. Another important part of the process is the performance reports. These reports allow the principals to compare the budget to their actual results. This is important because the principal cannot make adjustments to their financial decisions if they are unaware of any needed changes. This also creates a mandatory line of communication between each principal, the superintendent, and the business manager. This line of communication creates a much more efficient and effective operating system over-all.

There are many ways that accounting information can be used and there are different users of this information. In private industry, the financial information can be used by investors or stockholders to determine if they want to invest or if their investment is paying off. Is the case of a school system there are obviously no investors in the truest sense. There are tax payers who have an interest in the school system but they are not doing so to receive a payout. In schools, financial information may be used for different reasons. A tax payer in the community may be interested in looking at the school budget to determine if the school is using its funds in an intelligent manor. This may lead the citizen to decide to vote yes or no on an issue such as a millage. Financial information may also be used by the school board to determine fiscal responsibility of the district and ultimately the superintendent. This may be used to evaluate the job performance of the superintendent and may sway the board as to whether or not to renew their contract for the following year. The board may also use the financial information for decision making. The board will be able to see the current financial position of the district and compare these numbers to past numbers to aid in evaluating the district’s financial health.

There are three ways that financial data can be used toward performance evaluation and control. According to the Pearson text these ways are scorekeeping, attention directing, and problem-solving (Pearson 2014). Scorekeeping is the collection and classification of data that helps the school district evaluate its performance. It is very important to make sure that the information being used is accurate and reliable prior to using it. Attention directing involves reporting and interpreting information which helps the principals focus on problems, inefficiencies, and opportunities. The principals and the superintendent are able to see where there are problems that need to be addressed as well as areas that are working as planned. Problem-solving involves analysis of actions and identifies the best course to follow. During problem-solving, the managers can see what financial decisions are working as planned and which ones need to be tweaked. Through the use of this process, managers are able to see where their financial strengths and weaknesses are, focus on ways to resolve the weaknesses, and make the necessary changes to strengthen the entire school district.

Budgets play a very important role in planning and control in all organizations. According to the article by Jim Riley there are 6 key purposes of budgets. The six purposes are “a method of planning the use of resource, a vehicle for forecasting, a means of controlling the activities of various groups within the firm, a means of motivating individuals to achieve performance levels agreed and set, a means of communicating the wishes and aspirations of senior management, and a means of resolving conflicts of interest between groups with the organization (Riley 2012).” First the organization develops and ideal plan on how it intends to use the resources that are available. Next is to develop and define way of trying to predict what is going to happen over the next year in an attempt to plan accordingly. Then the budget attempts to control the activities of the various members of the organization within the means allotted. The members are provided the budget and it is relayed to them that they are expected to operate within this budget. The budget also communicates the focus areas of management to the employees so there is a more clear understanding of what is expected of them. Finally the budget aims to resolve internal conflicts. The money that is available is already divided into the specified areas of interest by management, therefore it is not up to the employees how much money their area will receive or how they will be able to utilize their money. It is crucial that all members of the organization know what is expected and what resources are available in order to assure financial success to the fullest. This is only possible through the effective use of budgeting.

Managerial accounting is an evolving process. In order to understand the process one must understand the current trends. By studying these trends, the owners of small businesses can evaluate their business performance and explore ways to make their business better. According to Freedman, there are four current trends in managerial accounting that should be focused on. The four trends are sales, cost of goods sold, net income, and conversion. When owners review their sales they typically look for increases in total sales from the previous year. It is important to keep in mind, that when the economy is slow, the total sales may be less than the previous year but the current year may have still been successful. From the other stand-point when the economy is strong large sales may not be a sure sign of success. While there may have been a large amount of items sold this doesn’t mean the business was successful overall. Next, a business should look at cost of goods sold. When a retailer sees an increase in cost of goods sold it can mean one of two things. Either the cost of the materials that the business is selling has increased, or there is a problem with inventory, such as employee theft. In order to maintain a successful business, the owner must determine why cost of goods sold is higher than it was previously. If it is believed to be theft-related, changes must be made. Next, owners should look at net income of the business. In large corporations, this means has the net income been met, or exceeded, the forecast for their business. For a small business, most owners look to see that there is an increase to the net income after each accounting period or simply maintaining a stable pattern of profitability. Finally, owners of businesses should look at conversion when evaluating their business. Conversion is the ability of a business to make a sale to a customer who visits their store. This is a process of evaluating the sales staff and their effectiveness in making a sale to a potential customer. This also allows the owner to compare trends and determine if the decrease in sales is related to a decrease in potential customers or poor customer service by their employees.

While a lot of managerial accounting concepts seam to focus on for-profit businesses, there is definitely a need for sound accounting and accountability within not-for-profit organizations like schools. The accountant in a school district is not only bound by the requirements of the accounting practice, but must also be accountable to the public within the school district. It is also very important to have a set of guidelines in place to act as internal controls to “protect and make the most efficient use of the organization’s assets” (Pearson 2014). By working closely with the principals in the district and maintaining open lines of communication, this can be a much more objective process with positive results. There is great value to the input of the principals because they know what is happening at the building level and what purchases or repairs are needed or what may be able to wait until a later time. This helps make the use of current funds as efficient as possible. When this process is utilized, the financial situation of the school district is very sound. In the event that a tax-payer asks questions about the use of funds, the accountant will be able to answer with confidence, that all financial decisions are based on concrete information.

Pearson (2014). Financial Analysis, Planning, and Control. Boston, MA: Pearson Learning Solutions.

Riley, Jim. (2012). Budgeting – Introduction to Budgets. Retrieved from: http://www.tutor2u.net/business/accounts/introduction-to-budgets.htm.

Freedman, John. Business & Entrepreneurship. Trends in Managerial Accounting. Retrieved from: http://yourbusiness.azcentral.com/trends-managerial-accounting-24824.html.
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Posted on May 30, 2016Author TutorCategories Question, Questions

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