Essay: Management accounting

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Management accounting is those areas of accounting concerned with financial planning, principally through the interpretation and use of financial data for important management of the business. The role of accounting is to provide relevant information, which will assist management with decision-making, planning economic performance, controlling costs and improving profitability. However, note that the information generated by the management accounting function is just one component part of the decision-making process. It is not the ‘be all and end all’; it must be used in conjunction with other data. The purpose of this essay is outline the objectives of and the main stages in, a managerial planning, decision making and control process and describe the role served by managerial accounting in this process.

The aim of management accounting is to provide management with information, which will help them to:

Understanding the nature of measurement and communication, the characteristics of economics information, the theories and practices of the decision making process and the identification of accounting information users are crucial to the understanding of accounting in general.

The major users in accounting information can be divided into three groups:

An accounting system is a formal mechanism for collecting, arranging and communicating information about an organization’s activities. This will only be develops if the benefits from its use, in term of improved decisions, are expected to exceed the costs of establishing and operating it.

Differing from financial accounting, the focus of management accounting is usually on the information at a more details level, on results for any products and on costs for particular productive operations. Understanding the role of management accounting requires an appreciation of what is involved in management and the kinds of decision that management is faced with.

Information is important in management decision making. The objective of the management accounting system is to provide the best information for assessments of the amounts, timing and uncertainty of cash flows to the business from each alternative course of action available to the business.

The purpose of management accounting involves identifying the types of decision needed in management accounting in order to provide useful information for managers.

The main types of decision include:

I think that these two types of decisions are inter-connected, because the cost of resources to produce goods and provide services is relevant to decisions on the best production output and best pricing strategy required.

The framework for managerial planning, decision-making and control process incorporates seven stages, and this is illustrated by a flow chart.

Stage 1 Identify goals of organization

Stage 2 Collect and analyse data about Alternative courses of action

Stage 3 Choose decision rules

Stage 4 Rank alternative courses of action

Stage 5 Make a decision and state expected outcome

Stage 6 Report actual outcome of decision

Stage 7 Monitor actual outcome to ensure actions under control

Stage 1 : The identification of goals

The management process consists of a series of activities in a cycle of planning and control. Planning can be specified as the choice of company objectives and the methods of their attainment.

The most obvious goal of any organization is to maximize shareholders’ wealth, i.e. profit. This is normally assumed in a traditional microeconomics analysis. Maximizing owners’ wealth also implies maximizing market share and long growth. Management must devise realistic goals for it’s firm, achievable in the short term preferably, otherwise there will be no benchmark for comparison between a firm’s progress now and say, a year later. Having said that, it’s often difficult for a firm to follow realistic goals as different participants within the organization may have their own disparate interests.

However, the first and foremost objective in organizational planning is the maximization of the present value of the organization’s future cash flows. This is adapted for a number of reasons:

Stage 2 : The collection and analysis of data about alternative courses of action

The decisions made by management can be classified into long-term decisions, such as those involving significant changed with an organization’s operation, or short-term decisions such as those, which only affects its running for a short time like the production of a certain product.

Management has the responsibility to draw up and evaluate the relative costs and benefits to the organization whichever of the decisions they are undertaking.

Sometimes, a decision which appears to be easily quantified and clear cut on paper may not be so straight forward when put into practice, thus management must contemplate carefully as these decisions will ultimately determine whether a decision is correct or not.

For example, managers should not only take into accounts the costs, revenues, incomes, etc. But also the less obvious factors such as the competition environment, interest rates imposed by the government, future operating conditions and any other uncertainty associated with the costs and benefits contribution.

Stage 3 and 4 : The choice of decision rules and ranking of alternative courses of action

Making competent decisions depends on two indispensable criteria selected by managers:

Decision means choices, thus decision-making implies making choices between alternatives, competing course of action. If there is no available alternative, then decision-making is not necessary. Management has to assess whether choosing a particular product X has the overall benefits or choosing an alternative, Y i.e. compare the two products, and weight up any differences between choosing on and not the other.

Management accounting is a key part in an iterative decision making process:

This is a continuous process.

The fundamental question for consideration here is, “How is management to choose from among these so many possible alternatives so as to maximize the present value of the expected future cash flows?” The answer to this question is indirect. Each potential alternative will have different cash consequences and change continuously with time. Therefore, analyzing the differences between available alternatives is essential to good decision-making. This analysis is called ‘differential’ or ‘incremental’ cash analysis. This basically gives managers an overlook of the advantages and disadvantages of the choice of alternatives. The final decision is to accept the alternative with the greatest net present value or cash flow, i.e. NPV

Stage 5, 6 and 7 : The decision making and control processes

Stage 5 is the forecasting stage in which it predicts the most likely outcome of a decision, expressed in a budget form. The budget is prepared on estimates of differential costs and revenues in the chosen course of action with some valid assumptions.

Meeting budget targets can be implemented by monitoring the actual performance, this is known as the control process. This is illustrated in stage 6 and 7. Regular control reports provide a useful feedback for management to assess the progress so far.

A management control system may be used here. It is a logical integration of management accounting tools to gather and report data and to evaluate performance.

Management accounting has a role in all stages of the management process.

It evaluates capital expenditures, identifies and measures information on products and markets and is especially critical in short term planning through budgets.

It develops accounting standards for operations, provides an internal reporting system for a particular business structure and this is known as “responsibility accounting”.

This is broken down further into three aspects:

Here, management accounting identifies any alterations from plans, gives prompt news on any unforeseen problems and explains the nature of results published with the organization.

It encourages staff to work at their best by rewards and incentives, and the budget and performance reports can influence outcome.

It serves as a language tool for most business organization and provides a useful link to information system.

In conclusion, management accounting ensures the transformation process from inputs, through the production process to output is viable, and it plays a principal role in management decision-making. Management accounting is the process of identifying, measuring, accumulating, analyzing, preparing, interpreting and communicating information that helps managers fulfill organization objectives. Accounting responds to the need for quantitative financial information. It is interpreted as a language of economic activity. The purpose of accounting is ultimately to assist someone to make decisions by the accumulation of all accounting information. The information to be provided by the accounting system depends on who is making the decisions and for what purpose.


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Management Accounting: The Main Aspects

Executive summary.

This report provides valuable information on management accounting in detail and explores various aspects of this concept. The analysis of management accounting in the body section of this report is divided into five sections with each section describing a crucial aspect of management accounting. The first section enables an understanding of management accounting in general and describes different management accounting systems. The second part analyzes the various methods used for management accounting reporting while the third section focuses on the benefits of management accounting systems and their advantages within the organizational context. The fourth section explains how management accounting systems and management accounting reporting are integrated within organizational processes. The fifth section of the body is an analysis of two planning tools used in management accounting. The last part of this report provides a conclusion of the contents and recommendations on management accounting.


Management accounting or managerial accounting refers to the process of identifying, collecting, and analyzing both financial and non-financial data within an organization that aids in internal decision-making. Management accounting varies from financial accounting as the latter focuses on financial information analysis and is guided by fiscal policy and government standards (Weetman, 2019). Management accounting is only used by the management team for various purposes within the organization and is not disclosed to people or organizations outside management.

There are various management accounting systems and their requirements vary as detailed below. Product costing and valuation is a managerial accounting system that focuses on determining the costs involved in the production of goods and services (Weetman, 2019). A breakdown of costs into subcategories such as variable, fixed, direct, and indirect costs is crucial for this system. Managerial accountants calculate the overhead costs associated with a certain product to ascertain the expenses incurred. A crucial aspect of the product costing and valuation system is marginal costing that aids in the valuation of goods.

Cash flow analysis is another method of management accounting that enables the determination of the impact of business decisions on cash. A managerial accountant focuses on the impact of a specific decision on cash inflow or outflow in the business in this system (Reza, Kusumaningrum, and Edi, 2017). Inventory turnover analysis is vital and is essentially the calculation of how often an organization has sold and replaced inventory within a given period (Amanda, 2019). A management accountant seeks to particularly establish the carrying cost of inventory, the expense of unsold items on the company.

Constraint analysis seeks to establish existing constraints within a production line or sales process (Amanda, 2019). This method is specific to either of the mentioned components. When a management accountant focuses on challenges within the production line, they may identify difficulties that are responsible for diminished profits and increased losses within the company. Challenges within the sales process may vary from difficulties related to the company or difficulties that are specific to the clients.

Financial leverage metrics is another method of management accounting that refers to a business entity’s use of borrowed capital. The borrowed capital can be invested in acquiring additional assets or increasing return on investment (Amanda, 2019). This system includes a balance sheet analysis that can offer valuable insights into company debt and equity. Performance measures that are relevant in this case include return on equity, debt to equity, and return on invested capital.

Accounts receivable (AR) management is an additional method of management accounting and affects a firm’s bottom line. It enables a company’s management to decide on whether a certain customer is becoming a credit risk (Amanda, 2019). This method focuses on how long a client takes to pay their debt and it is classified based on time. Grouping different clients on this basis enable decisions on which clients the company should consider dropping. Budgeting, trend analysis, and forecasting is the final method of management accounting that will be analyzed in this report. Deviations from budgetary plans indicate flaws within the plans made by the company. An analysis of trends enables the prediction of future business possibilities while forecasting enables the setting of targets.

Methods Used for Management Accounting Reporting

Management accounting reporting methods vary based on the nature of the management accounting method initially applied and the intended purposes. Budgeting reports analyze past expenditures within an organization and seek to establish whether the past expenditures were in tandem with intended targets (Maheshwari, Maheshwari, and Maheshwari, 2021). Budget reports also carry out forecasts of future budgets to enable efficient planning within an organization. Accounts receivable aging reports deal with credits and customer creditworthiness within the organization.

Proper segregation of customers based on how long they take to pay their debts is the purpose of this report (Madhuri, 2020). The accounts receivable method classifies them in different categories such as those that pay in 30 days, those that pay in two months, and those that pay in three months. This classification enables a company to eliminate customers who are not creditworthy from their books and retain those who pay in desired time.

Job costs report provides an analysis of how much a project costs the organization. This report focuses on areas within a report that are ridden with wastes and enables the company to channel the excesses elsewhere while finding ways of reducing wastage (Madhuri, 2020). These reports may analyze a project upon completion or while it is in progress. A job cost report while a project or business venture is in progress ensures that the profitability, cost, and expenses of a venture are known beforehand.

Inventory and manufacturing reports are for companies involved in the manufacturing business to ensure efficiency in their business processes (Fay and Kazantsev, 2018). Labor cost, per unit overhead cost, and wastage are the most vital components of such a report and enable the managers to make comparisons between different assembly lines. The comparisons ensure management can make decisions on areas that require improvements within the manufacturing sector.

Performance reports contain information on calculated differences between actual results and budgeted performances. The performance report enables management to gauge the effectiveness of their plan for different employees and the business in general (Karevold, 2021). It enables management to identify prior errors and chart mitigation measures that ensure such errors do not occur in the future. Order information reports are additional reports for management accounting that provide vital information on orders made by customers. These reports gauge the effectiveness of ordering and delivery within the business.

The efficiency of the staff in meeting client demands can also be gauged by this type of report. It enables management to come up with measures that reduce the cost of placing orders and the management of these orders. Opportunity reports or a business situation report inform management of a particular event (Schaltegger, 2020). It enables management to understand occurrences within the business and make relevant decisions on the same. Situation reports are regularly made within an organization and are prompted by recent developments within the company that make their preparation crucial.

Benefits of Management Accounting Systems and Application within an Organization

Management accounting systems apply to companies and confer many benefits to the organizations that use them. Management systems are essential during the planning phase as plans are made based on sound information (Erokhin et al., 2019). Planning involves vital aspects such as budgeting. Planning how a company will utilize its funds is essential in guaranteeing long-term success. Planning also enables companies to effectively mitigate unprecedented challenges in operations.

Management accounting systems also offer grounds for efficient control of various operations within an organization (Pavia, 2019). Progress in various facets of a business can be measured and compared to a set standard that is anticipated. Various aspects such as production and sales can be assessed and evaluated based on these standards, ensuring profitability. Management accounting also enables better service delivery to customers hence ultimate customer satisfaction (Cuzdriorean, 2017). Better customer service is informed by adequate investigations into the internal running of the company. Recognizing flaws in customer service or quality of goods spurs reforms within the company that are geared towards the improvement of service delivery.

Management accounting also enables better organization within a company as the authority and jurisdiction of various managers within the company are set. Better organization by employees who clearly understand and adhere to their responsibilities ultimately ensures successful operations and success in business (Joseph and Wayne, 2020). Management accounting eases coordination within a company and ensures each department within a company is integrated into achieving departmental goals that eventually cause overall success.

Departmental goals ultimately lead up to greater company goals and coordination must be achieved within an organization. Efficiency is generally boosted within an organization that invests in management accounting (Joseph and Wayne, 2020). This is because avenues of time and resources wastage are identified and addressed. Management comes up with means of ensuring flawless flow in the work process ensuring minimal time wastage and also eliminates wastage of resources. Maximum utilization of time and resources ensures that a company can operate optimally and generate sufficient profits.

Management accounting ensures sufficient motivation within the workplace. Management accounting reports are usually submitted in the form of budget reports or situation reports and so on. These reports usually inform various essential decisions within an organization such as demotion and promotion of employees. These are crucial decisions that influence employee morale for those who are promoted to higher positions (Cuzdriorean, 2017). Those who are demoted are also encouraged to work harder and smarter in a bid to regain their previous positions. Good morale and motivation within a company are grounds for good performance and enhanced productivity.

Management accounting also contributes to better communication within an organization by ensuring the harmonization of information. Management accounting reports ensure that there is an efficient collection of data on the finances and business of a company (Ahmed, Ameen, and Hafez, 2018). Such information is relayed to employees and management in a clear and precise way. The net benefit of the benefits of management accounting listed above is enhanced profits within an organization. A company attains growth in profits and productivity as a result of management accounting. Tools used in management accounting are reliable ensuring unswerving data is provided to management.

Management Accounting Systems and Management Accounting Reporting Integration within Organizational Process

General management of a company and assignment of responsibilities within the organization is affected by management accounting systems. Management accounting reports are a great indicator of duties that should be performed by every member of the workforce (Hilorme et al., 2019). Such decisions are informed by flaws that are identified by performance reports and boundaries set for each employee to ensure effectiveness. Division of labor and specialization are vital aspects of production that are affected my management accounting reports due to the various insights discovered.

Acquisition of assets for organizational growth and assets assignment to various sectors of a business is also affected by management accounting reports. These reports identify the investments that are profitable for a business and encourage increased investment in these ventures (Doktoralina and Apollo, 2019). Additionally, they discourage investment in loss-making ventures, ensuring that a business can minimize wastage. Management accounting reports also identify sectors that are not adequately furnished with resources and enable management to make these decisions that increase allocation. Resource allocation does not necessarily refer to finances as it can also refer to the allocation of human resources to a department based on the reports.

Management is a crucial part of making decisions on employee hiring, demotion, and promotion based on both performance and customer demands. Management reports that indicate the input of various employees and sectors are integrated into the human resource department (Brierley, Gwilliam, and David, 2018). These reports can influence the hiring of additional employees if a business is booming and there is a need for a bigger workforce. The demotion of workers and the promotion of others can be necessitated by levels of customer satisfaction discovered by situation analysis reports.

Long-term decisions on the longevity of a business such as product diversification and stopping the production of a specific product are also affected. Budgeting and forecasting are affected by management accounting reports and these affect long-term business decisions (Ahmed, Ameen, and Hafez, 2018). Financial reports indicate the health of a business and negative finances may encourage management to quit on a product that is causing losses. Losses may also be necessitated by the rigidity of a company to one product and these reports necessitate diversification of production. Trendy products are often profitable at the start but gradually become loss-making ventures. Through management accounting, a company can forecast when that is likely to occur and make decisions that prevent this such as permanent closure.

Prior information of internal stakeholders before meeting external stakeholders and making decisions that mitigate flaws that may affect the external stakeholders is also a role of management accounting. Internal stakeholders essentially run a business but external stakeholders including the various management institutions are also crucial (Ahmetshina, Vagizova, and Kaspina, 2017). When internal management is capable of detecting a flaw within the system in time, they can rectify and evade potentially harmful effects of external stakeholders. This may include data of irregularities that were not previously detected.

Planning Tools in Management Accounting Analysis

Target costing is a management accounting planning tool that involves implementing a common set of tools on cost planning, cost management, and cost control. This method analyzes each stage of the production cycle and identifies costs at each phase of production and improves the technology used for efficiency (Cooper and Slagmulder, 2017). It evaluates techniques of market study, value analysis, reducing diversity, manufacturing technology, and the relationship between suppliers and customers.

Target cost refers to an estimated production cost for a specific product. This value is settled on by management after evaluating the facets mentioned above and aids in evaluating business progress (Ahn, Clermont, and Schwetschke, 2018). The targeted cost incorporates expected profits by the company and competition within the market. Management mostly moves in to control target costing due to their diminished control on the selling profits to ensure profitability.

Target costing is a very effective method of management accounting as it ensures that a business continuously makes profits given this is the primary role of a business. It also improves production technology as management settles for the cheapest and most effective means of production, generally boosting the company’s quality of goods (Ahn, Clermont, and Schwetschke, 2018). This tool also reaffirms management’s commitment to process improvements and product innovation to gain a competitive advantage. The detrimental effect of target costing may emanate from ruthless management that aims at achieving its target cost regardless of effects on employees (Cooper and Slagmulder, 2017). To minimize cost, management may lay off workers to ensure that minimal human resources are used for a cheap cost. In general, target costing ensures the setting of goals and their achievement by an organization.

Break-even analysis involves computing and probing the margin of safety for a company based on revenues accrued and associated costs. The analysis shows how many sales are made before the cost of doing business is paid (Sintha, 2020). This method is used for corporate budgeting of various projects to ensure they remain profitable. This tool relies on calculations that involve fixed costs and variable costs. The break-even analysis is usually used to ensure that if a scenario where a company does not make profits occurs, the company still doesn’t make losses. This point is considered the safe point for a company that ensures it can operate without making losses.

The break-even analysis is an important tool for any business as it ensures budgeting and setting of targets. This means that a business can plan for its available finances and ensure an equalization fund is in place to prevent stalling of projects (Vagner Iryna, 2020). This tool is also crucial for monitoring and controlling costs as the company can make only the products that do not jeopardize its operations. These products can be sold by the company without losses occurring. The company also produces a manageable amount of goods ensuring market saturation does not occur. Having the required amounts of goods in the market ensures that a company can effectively manage competition (Vagner Iryna, 2020). These benefits ensure that the method is very effective in management accounting.

Conclusions and Recommendations

In conclusion, management accounting is a crucial aspect of any business as demonstrated above. Management accounting ensures that the business remains healthy during operations without making catastrophic losses. It is recommended that management accounting be carried out regularly to ensure that flaws within the business are noted and rectified on time. It is also recommended that copies of the management accounting reports be availed to all the staff within the organization. Availing such crucial data ensures that all stakeholders are informed of the state of the company and act in the best interest of the business.

Reference List

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Ahmetshina, A., Vagizova, V. and Kaspina, R. (2017). The use of management accounting information in non-financial reporting and interaction with stakeholders of public companies. in: The Impact of Globalization on International Finance and Accounting . Springer, Cham, pp.433–439.

Ahn, H., Clermont, M. and Schwetschke, S. (2018). Research on target costing: past, present and future . Management Review Quarterly , [online] 68(3), pp.321–354. Available at:

Amanda, R. (2019). The impact of cash turnover, receivable turnover, inventory turnover, current ratio and debt to equity ratio on profitability. JOURNAL OF RESEARCH IN MANAGEMENT , 2(2).

Brierley, J.A., Gwilliam and David (2018). Human resource management issues in accounting and auditing firms: a research perspective . London; New York Routledge.

Cooper, R. and Slagmulder, R. (2017). Target costing and value engineering . [online] Routledge.

Cuzdriorean, D.D. (2017). The use of management accounting practices by Romanian small and medium-sized enterprises: a field study . Journal of Accounting and Management Information Systems , [online] 16(2), pp.291–312.

Doktoralina, C.M. and Apollo, A. (2019). The contribution of strategic management accounting in supply chain outcomes and logistic firm profitability. Uncertain Supply Chain Management , 7(2), pp.145–156.

Erokhin, V., Endovitsky, D., Bobryshev, A., Kulagina, N. and Ivolga, A. (2019). Management accounting change as a sustainable economic development strategy during pre-recession and recession periods: evidence from Russia. Sustainability , [online] 11(11), p.3139.

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Managerial Accounting – Definition, Objective, Techniques & Limitations

conclusion for management accounting assignment

What is management accounting?

Managerial accounting, also called management accounting, is a method of accounting that creates statements, reports, and documents that help management in making better decisions related to their business’ performance. Managerial accounting is primarily used for internal purposes.

Importance of managerial accounting

The main objective of managerial accounting is to assist the management of a company in efficiently performing its functions: planning, organizing, directing, and controlling. Management accounting helps with these functions in the following ways:

1.  Provides data:  It serves as a vital source of data for planning. The historical data captured by managerial accounting shows the growth of the business, which is useful in forecasting.

2.  Analyzes data:  The accounting data is presented in a meaningful way by calculating ratios and projecting trends. This information is then analysed for planning and decision-making. For example, you can categorise purchase of different items period-wise, supplier-wise and territory wise.

3.  Aids meaningful discussions:  Management accounting can be used as a means of communicating a course of action throughout the organization. In the initial stages, it depicts the organisational feasibility and consistency of various segments of a plan. Later, it tells about the progress of the plans and the roles of different parties to implement it.

4.   Helps in achieving goals: It helps convert organizational strategies and objectives into feasible business goals. These goals can be achieved by imposing budget control and standard costing, which are integral parts of management accounting.

5.  Uses qualitative information:  Management accounting does not restrict itself to quantitative information for decision-making. It takes into account qualitative information which cannot be measured in terms of money. Industry cycles, strength of research and development are some of the examples qualitative information that a business can collect using special surveys.   

Scope of managerial accounting

The main objective of managerial accounting is to maximize profit and minimize losses. It is concerned with the presentation of data to predict inconsistencies in finances that help managers make important decisions. Its scope is quite vast and includes several business operations. The following points discuss what management accounting can do to make a business run better.  

1.  Managerial accounting is a rearrangement of information on financial statements and depends on it for making decisions. So the management cannot enforce the managerial decisions without referring to a concrete financial accounting system.

2.  What you can infer from financial accounting is limited to numerical results like profit and loss, but in management accounting you can discuss the cause and effect relationships behind those results.

3.  Managerial accounting uses easy-to-understand techniques such as standard costing, marginal costing, project appraisal, and control accounting.

4.  Using historical data as a reference, the management observes the current information to check the impacts of business decisions.

5.  Management can use this type of accounting to set objectives, format plans to meet them, and compare the performance of various departments.

6.  Managerial accounting is used for forecasting. It concentrates on supplying information that would ease the effect of a problem rather than arriving at a final solution.

Techniques in Managerial Accounting

In order to achieve business goals, managerial accounting uses a number of different techniques.

Marginal analysis:  This assesses profits against various types of costs. It primarily deals with the benefits of increased production. It involves calculating the break-even point, which requires knowing the contribution margin on the company’s sales mix. Here, sales mix is the proportion of a product that a business has sold when compared to the total sales of that business. This is used to determine the unit volume for which the business’ gross sales are equal to total expenditures. This value is used by managerial accountants to determine the price points for various products.

Constraint analysis:  Managerial accounting monitors the constraints on profits and cash flow with respect to a product. It analyzes the principal bottlenecks and the problems they cause, and calculates their impact on revenue, profit, and cash flow.

Capital budgeting:  This is an analysis of information in order to make decisions related to capital expenditures. In this analysis, the managerial accountants calculate the net present value and internal rate of return to help managers with capital budgeting decisions like calculating payback period or calculating accounting rate of return.

Inventory valuation and product costing:  This deals with determining the actual cost of goods and services. The process generally involves computing the overhead charges and assessment of direct costs associated with cost of goods sold.

Trend analysis and forecasting:  This primarily deals with variations in product costs. The resulting data is helpful in identifying unusual patterns and finding efficient ways to identify and resolve the underlying issues.

Limitations of managerial accounting

Managerial accounting may define the pace and process of development of an organisation yet it has its set of drawbacks. By now, we know that the information to make managerial decisions is dependent on financial statements. Due to this, the strength or weakness of accounting decisions made depends solely on the quality of basic records. Meanwhile, different managers may interpret the same information in different ways depending on their capacity and experience in the field. That way there might be bias in decision-making process.

A managerial accounting system is more suitable for bigger enterprises which are at the peak of growth. This is possible because the company can afford the price of installing a system in place and even hire professionals to make the best of it to prevent the company from future meltdowns.

Management accounting helps in analysing and recording financial information which can be used by a company to increase its efficiency and productivity. It presents the financial information in regular intervals using easy-to-understand techniques such as standard costing, marginal costing, project appraisal, and control accounting. However, the information required to make managerial decisions depends completely on financial statements. Hence it becomes important to maintain error free records. Besides several disadvantages, it acts as a useful tool for better management of business.

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If an example of Information Technology is to be awaken then It Is realized that once they were left to do IT related Jobs or make computers work however, in today’s world IT professionals are now moving into higher level management positions which require them to perform many other tasks which may not be directly related to the their profession. Therefore, a stereotypical role of an accountant was once considered a “number person” but today’s era demands accounting professional to own and use Interactive and communication skills to help with the decision making process across all areas of a business.

In a managerial accounting world all professionals must communicate their ideas to other impasses using ways which are tactful and effective. Siegel (2000) states that “Management accountants should be great communicators. ” Durra C (1992) believes that management accounting is “concerned with providing information to managers – that is people inside an organization who direct and control the operations. ” In the 19th Century financial accounting was considered to be the need of a society which later evolved to Management accounting.

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Management accounting became a prerequisite for more detailed information for stock control, product costing and decisions affecting the future. Accounting is facing numerous challenges, as Lexington (1998) states “business people must increasingly recognize that the challenge now is to help to deliver simultaneously economic prosperity, environmental quality and social equity. ” All this is making business managers to re- examine the practices that are currently led. Coking G and Hicks D believe that Managerial accounting is part of an organizations management information system.

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To follow any business or an organization alma managers engage In satellites which involve an effective cost model as it can be a great asset to an organization. A business or projects to be a success or failure three things need to be considered, for example, cost, schedule and performance. A project should be continued within the means provided otherwise stakeholders struggle to finance the project and Its abandoned. A success of a manager Is when appropriate tools are employed and sound safe decisions are made and follow on with applying substantial level of expertise to have effective cost management.

The world today is surrounded by Increasingly advanced technology such as computer assisted manufacturing and flexible manufacturing systems. According to Coking and Hicks organizations to value chain from product design and purchase of material therefore internal cost is very important as mentioned in Coking and Hicks article because it becomes critical for competitive action and increasing shareholders wealth in the current globally competitive economy. Management accounting systems are the benefactors of the precarious internal cost information.

There has been few criticisms leading to the literature of Management accounting system and it has been labeled outdated and there has been criticisms linked to its consistency as it has been thought that it does to provide consistent information with the current strategic management paradigm. Coking and Hicks believe that systems designs elements should capture the fundamental technology, promote a business based on effective cost model, quality and lead time.

Precise and appropriate cost information is critical to management’s decision making procedures (Coking and Hicks) and the literature being studied reveals Management accounting system reflects the organizational complications of the current world however traditional Management accounting systems do not replicate current organizational era as all costing procedures were designed around ate nineteenth century.

In traditional era product line diversity was not very common and cost of materials and direct labor were the main components of production cost but the environment today is surrounded around advanced technology and automation and that has led the prime cost to be the overhead component. The overhead costs are altering product cost because of the old management accounting system techniques. Management accounting needs a unique set of skills and behavior. According to Coking and Hicks Accounting Management framework gives business a planned approach to address all factors that will manage accounts interface and today’s reality.

Cooper and Kaplan believe there are six critical factors which play a crucial role in Accounting Management framework which also backs Coking and Hicks Journal being studied for this assignment. The first one is organizational structure. It includes factors such as whom and how you manage accounts, why and how you organize around them. The second account management success factor is people as they need the appropriate skills, knowledge and skills to experience and perform the role. The third factor is tools and technology as it must purport the account management processes and must balance “help” as “control. The fourth one is compensations structures as they can inhibit change or accelerate adoption. The fifth account management success factors are processes and methodologies as they should align with the customer, drive growth and opportunity plan and the last factor channels and alliances must be managed effectively through the account manager interface. It is up to an organization to structure their useful employees around their key customers and that can create a deep impact on their performance. First few deliberate decisions need to be taken in terms of placement of accounts management resources such as market and territory.

Coking and Hicks believe management team need to plan using methodology a number of factors to create a ranking based on the business goal for the affiliation and ability to deliver. Once these methodologies are selected they can play a vital role in team structure and it will help to deal with issues such as ownership or shareholders Coking and Hicks discuss the difference between cost accounting and managerial accounting and cost accounting is used within a business to manage that particular business.

Accounting standards of a country provide guidelines to an accountant so they can be used while reporting economic transactions of a business. United Kingdom accounting has improved a lot as mentioned in the Journal being studied for this particular assignment. Managers have immense pressure to improve financial management practices to improve service to the community and it is not only done on national level. Managerial accountants have to keep accountant standards fair globally and that is mainly done through Accounting Standards Committee. What gets measured gets managed, What needs managed gets measured” (Peter Trucker) ammos quotes has cause many criticisms but if the practices and development mentioned in Coking and Hicks Journal are to be analyzed, one can conclude this quote has some truth. Managers of a business often use this quote indicates that active management of businesses should be given importance instead of accountability to gain desired goals. It will lead to survive in today’s world of information age competition therefore businesses should ensure they are using management systems resulting from their strengths.

Any business main task is to develop an active measurement system as it is main part of the management process. Good management practices lead to using certain measures to plan, implement and improve certain aspects of an organization. According to Kaplan, (1994) measurement is a difficult task because it is not related to science so there are no facts and does not have rules between variables. Furthermore, systems which are used by management accountants will make sure that actions are taken according to the strategies and objectives developed.

There has been an immense amount of research on management accountants and the research evidence has proved that businesses which are using a developed measurement system are developing and aiming profits therefore, Gates (1991) states “an organizations objectives and severity of measures, varies, depending on people, culture and past experiences of the organization. ” The management accountant was developed after sass and it was seen a golden era in management accounting research as it saw new techniques and practices beneficial to the management accounting.

One of the techniques developed in ass was strategic management accounting and some of the processes which fall under the category of strategic management accounting are activity based costing and balance scorecard. The balance scorecard emerged after it was realized that there is a need of an integrated system which can be used to measure both financial and non-financial performances. It helps companies to view their performances on a regular basis and it gave a clear view of what should be measured in order to balance a particular business financial perspectives.

The balance score card consists of four functions known as learning and growth perspective. It means how to achieve a certain organizations goals and how will a business will sustain its ability to change and improve. The second perspective is financial and its aim is to succeed financially ND is mainly concerned with making a good impression to shareholders. Another perspective is based on customers as they can determine sales and to achieve business goals a good impression is to be made upon customers. The last perspective is known as internal business processes.

It mainly deals with how to business excel as. (Kaplan and Norton:1996) Balance scorecard is one of the necessities for any organization and it is used by the management to accomplish vision and strategies of an organization and it has few other benefits too such as, making sure managers are managing every single variable within an organization ND are not working upon favoritism. If more developments are to be discussed and strength of Coking and Hicks Journal than one must not forget one of the major development in an accounting field known as Activity-based costing.

Kaplan and Cooper gave this idea a new beginning as it was not very well known in previous years. According to Kaplan (1996) manufacturing costs are determined by amount of “activities” and the key to effective cost control is maintaining the effectiveness of the activities BBC recognizes better cost pools for indirect costs and then implies cost rivers to relate the expenses in the cost pools to activities of an organization. BBC has become more popular in recent years but faces a lot of criticisms too due to the fact that sometimes businesses face difficulties in implementing this technique.

BBC is enhanced further by Activity-based management as they believe in planning and measurement and class them as key factors in a competitive business environment. To conclude, If an organization has accounts managers or not a success can only be achieved if a successful profile is valued. It can be done through an industry as it will alp determine to what extent an account manager is an industry expert and the second is through customers as it is vital for an accountant to understand the businesses being worked upon.

The profession Accountancy has seen many developments and criticisms however, since sass there has been many changes in management accountancy. The new changes are focusing on measurement tools within a business to manage its aims and objectives. Management techniques are discussed briefly in this essay and they emphasize on Coking and Hicks Journal that management decisions can be made better by using effective management agreement tools and it leads to improving the management of an organization.

Management accounting and decision making. (2020, Jun 02). Retrieved from

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Management accounting and decision making

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Differentiating financial and Managerial accounting Research Paper

Basic differences, regulatory bodies, reference list.

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Accounting is classified into two main types; financial accounting and managerial accounting. Financial accounting refers to the generation of periodic reports in conformance to the requirements of shareholder statute and other external bodies like government agencies.

Managerial accounting refers to the identification, processing and communication of information needed for managerial planning, evaluation and control in an organization. Thus, the major difference between the two is that financial accounting is meant for use by external parties like creditors, shareholders, etc. while managerial accounting is meant for use within the organization by managers.

This basic difference leads to a number of other notable differences between management and financial accounting despite the fact that both use the same financial data. In addition to the people targeted by the accounting reports, the two also in the final data presented to users, addressing of the future or the past etc. Let us have a closer look at these differences (“Financial and Management Accounting”, 2008, p. 1).

The differences between managerial and financial accounting include the stated fact that management accounting prepares reports for use within the organization by employees and managers while financial reports are generated for use by parties who are not a part of the organization i.e. external parties. These include government agencies, shareholders, banks, creditors etc (Geoffrey, 2009, p. 1). Another difference is evident in the objectives of the two types of accounting.

While managerial accounting is aimed at providing information for decision making e.g. cost information, cash flows, budgets, etc., financial accounting is aimed at recording organizational performance over a specific period of time, preparing financial statements for this period and stating the position of the organization at the end of the specified period.

The stated difference in the objectives of the two types of accounting makes them to differ in their priorities. Management accounting prioritizes timeliness of information while financial accounting prioritizes precision of information (Gupta, 2009, p. 1).

This is because for management reports to have the desired impact on an organization, they must be presented to the management early enough to give the management time to make decisions. On the other hand financial information has to be precise in order to win the confidence of shareholders, creditors and government agencies. This will, in turn, lead to organizational welfare brought about by the transactions these parties make with the company.

Additionally, management accounting is optional since it is not a legal requirement while, on the other hand, financial accounting is a must for all limited companies. Thus management accounting is carried out as an organizational need while financial accounting is carried out as a regulation.

Management accounts are a means to an end while financial accounting provides an end in its accounts. This is substantiated by the fact that management accounts are not products of organizational decisions but they aid in making the decisions while financial accounts are final products presented to their users. The two types of accounting also differ in their scope.

This is evidenced by the fact that management accounting may concentrate on specific parts (activities or operations) of an organization while financial accounting covers the whole organization. Management accounting may deal with both monetary and non-monetary information while financial accounting strictly works with monetary information. Management accounting deals with either the immediate past of the future while financial accounting deals entirely with past information (Geoffrey, 2009, p. 1).

This is due to the fact that management accounting is for decision making and thus it is used for planning the future of the organization while financial accounting is for the reporting of past operations and thus it deals with past performance. Management accounting does not have specifications for the time span after which it should produce financial statements but financial accounts must be prepared annually and their statement presented to the concerned parties (“Financial and Management Accounting”, 2008, p. 1).

Financial accounts must be prepared in accordance with the rules set out by the IASs (International Accounting Standards) and the law. Thus financial accounting must follow the GAAP (Generally Accepted Accounting Principles). This enables easy comparison of the financial accounts of different organizations.

On the other hand, managerial accounting is not governed by any rules and it concentrates on the usefulness of its accounts to the decision-making function carried out by managers. Its accounts are therefore not prepared in accordance with the specifications given by the IASs. It also does not have format specifications for its accounts from the law (Gupta, 2009, p. 1).

Due to the difference in the objectives and users of the reports from the two types of accounting, the need for verification of their truthfulness varies. Management accounts are used within the organization and thus there is a negligible motivation for manipulation of figures. The fact that it is meant for future planning, phases out the possibility of untruthfulness meant to cover frauds and mistakes. Due to the fact stated above, management accounts are not subject to auditing requirements.

On the other hand, financial accounts are presented to external parties like shareholders, creditors, banks, government agencies etc. and thus their truthfulness may be compromised. The fact that financial accounts are concerned with historical data is also an input to the need for establishment of the truthfulness of financial accounts since they may be manipulated to conceal unintentional errors and frauds.

It is, therefore, a legal requirement that all financial accounts for limited companies be audited to establish their truthfulness. Financial accounts are, thus, characterized with data objectivity and verifiability due to the auditing requirement. On the other hand, as long as the items presented in management accounting reports are relevant to decision making, data objectivity and verifiability is not mandatory (“Financial and Management Accounting”, 2008, p. 1).

From the discussion above, it is apparent that management accounting is mainly concerned with cost analysis and budgeting functions aimed at aiding management in decision making while financial accounting is concerned with recording of financial data related to transactions and the use of this data in the preparation of periodic financial statements for presentation to external parties.

The differences between management accounting and financial accounting are, therefore, inexhaustible due to the differences in their objectives, scope, timeliness and the difference in the users of their reports.

Additional differences that are not mentioned in the discussion above include the fact that in financial accounting, management should be concerned about the sufficiency of disclosure in statements while in management accounting, the management should be worried about the effects the management reports are bound to have on employees and the organization as a whole (Geoffrey, 2009, p. 1). Therefore, management accounting and financial accounting are very different.

Geoffrey. J. (2009). Comparison of financial and management accounting. Retrieved from

Gupta. T. (2009). Introduction to managerial accounting (Cost or Management Accounting). Web.

Transport Financial Analysis. (2008). Financial and Management Accounting. Web.

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