Concept of Management Accounting

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The modern industrial or service firm must conduct its business in a rapidly changing and highly competitive environment. A premium is placed on the ability to react quickly and correctly to constantly changing market conditions. Management must be concerned with all aspects of the firm’s operations including production of goods and delivery of services, sales and marketing activities, and supporting functions, such as personnel training, data processing, etc. To handle these responsibilities most firms make extensive use of financial data and reports.

Management accounting is concerned with providing both financial and non-financial information that will help decision-makers to make good decisions. An understanding of accounting therefore requires an understanding of the decision-making process and an awareness of the users of accounting information.

Management Accounting is the accounting for management. It can be defined as the process of identifying, measuring, accumulation, analysis, presentation, interpretation, and communication of financial information which is used by management to plan, evaluate and control within an organization. It ensures the appropriate use of and accountability for organizational resources.

Management accounting is an integral part of the management process i.e. planning, coordinating, controlling and decision making. It measures and reports financial information as well as other types of information that assist managers in fulfilling the goals of the organization. It is concerned with:

  • Formulating overall strategies and long range plans.
  • Resources allocation decision such as product and customer’s emphasis and pricing.
  • Cost planning and cost control of operations and activities.
  • Performance measurement and evaluation of people.

As the management accounting assists in management function, if simply stated, it is the accounting for planning, controlling and decision making activities of an affair. For the successful operation of the business, all the management functions should be effectively exercised. In order to ensure effective planning, decision making and controlling, the managers need various information that is provided by the management accounting.

Some of scholarly given definitions of management accountings are:

In ordinary language, the term ‘management accounting’ is used to describe the modern concept of account as a tool of management in contrast to the conventional annual or half-yearly account prepared mainly for information of proprietors, the object being to so expand the financial and statistical information as to shed light on all phases of the activities of organization.

‘Management accounting’ is the term used to describe the accounting methods, systems and techniques, which coupled with special knowledge and ability, assist management in minimizing losses. It is essentially the application of management principles and know-how to the planning, development, execution and control of corporate plans.

Management accounting is the presentation of accounting information to formulate the policies to be adopted by the management and assists its day-to-day activities. It helps the management to perform all its functions including planning, organizing, staffing, directing and control. It presents to management the accounting information in the form of processed data which it collects form financial accounting.

Accounting is concerned basically with providing financial information that will help decision-makers to make economically rational decisions. Management accounting is defined as “the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.”

Management accounting is the process of identifying, measuring, analyzing, interpreting and communicating information for searching the goals of the company. Management accounting is an integral part of the management process and management accountants are important strategic partners in the company’s management team.

The role of management accounting now is very different from that of a decade ago. In the past, it operated in a strictly staff capacity but now it serves as an internal source of business consultants. In many organizations, management accountants take on leadership roles in their teams and are sought out for the valuable information they provide. Therefore, the goal of learning management accounting is not to be an accountant, rather it aims to produce confident entrepreneurs and capable managers.

Management accounting is an emerging discipline. With the changing environmental factors and cutthroat competition in the international market, the demand for thoughtful decision-making is highly appreciable. Brainstorming for organizational effectiveness has become quite important. The brain works faster than the body movement where success peers up. Management accounting is much more than mere technical work.

Management accounting concept emerged because of the complexity that exists in today’s business decision-making process. Its main theme is to simplify the planning and decision-making process and to provide support to achieve better organizational outcomes. It is important for every level of management because every manager has to be involved in some sort of decision-making, planning, and controlling process.

Management accounting provides more useful and important information and it is an analytical tool for:

  1. Strategic profit planning: maximizing profit or minimizing losses or costs.
  2. Decision-making: effective decision-making, planning, implementation, and overcoming the problem.
  3. Cost control and cost management systems.

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