MANAGEMENT ACCOUNTING 1

(Prepared by MS. ARMI K. BUYCO, CPA, MBA)

INTRODUCTION

DEFINITION AND NATURE OF MANAGEMENT ACCOUNTING

The business of accounting is information. And the business of management

accounting is to provide information for management.
Information is a processed data useful in making decisions. Data should be
captured, processed and reported as information to be useful in making decisions.
Managers need relevant and timely information to make reasonable economic
decisions. Aside from traditional information supplied by the financial accountant,
managers ask for more detailed, exhaustive, and confidential information for a more
intelligent appraisal about business operations.
The systems and processes used to gather data, process data, and provide
useful quantitative information to management is management accounting, also called
managerial accounting. It is a field of accounting that provides economic and financial
information for managers and other internal users. Management accounting supplies
the information needs of management. This information should be more detailed,
forward-looking, and presented and analyzed differently to suit the unique informational
needs of management.
The head of a management accounting group in an organization is called
management accountant. Sometimes, he is called VP for Finance, CFO, Accounting
Manager, Budget Director, CIO, or Systems Administrator. Traditionally, a management
accountant is called controller or comptroller.
Management accounting applies to all types of business—service, merchandising,
and manufacturing. It also applies to all forms of business organizations—
proprietorships, partnerships, and corporations. Management accounting is needed in
not-for-profit entities as well as in profit-oriented enterprises.

COMPARISONS BETWEEN FINANCIAL ACCOUNTING & MANAGEMENT

ACCOUNTING

Financial Accounting Management Accounting

● Historical in nature ● Deals about the future
● Reports are primarily for external ● Reports are primarily for internal users:
 users: shareholders, creditors, and
regulators
● Reports are holistic; pertain to
business as a whole
● Reports are for general-purpose;
highly aggregated (condensed)
● Focuses on the process of preparing
the financial statements; objectivity,
precision and verifiability are adhered
● Financial statements are prepared
annually
● Limited to double-entry accounting
and cost data
● Prepared in accordance with generally
accepted accounting principles (GAAPs)
● Reports follow a standard format
● Audited by independent CPA
officers and managers
● Reports are segmentized; pertain to
subunits of the business
● Reports are for special-purpose and for
management use only; very detailed
● Concerns with the usefulness of financial
statements; subjectivity, relevance and
timeliness are adhered
● Internal reports are prepared as
frequently as needed
● Extends beyond double-entry accounting
to any relevant data
● Standard is relevant to decision
● Reports may be prepared in any format
● No independent audit is needed

FUNCTIONS OF MANAGEMENT
Management’s activities and responsibilities can be classified into three broad
functions. They are:

 Planning - requires management to look ahead and establish objectives. These

objectives are often diverse: maximizing short-term profits and market share,
maintaining a commitment to environmental protection, and contributing to social
programs. A key objective of management is to add value to the business under its
control. Goals and objectives are sometimes interchanged. “Goals” must be
established to define directions and activities that need to be accomplished.
However, goals are normally expressed in general, abstract statements. The
statement of goals should be translated into a more specific statement of matters to
be accomplished known as “objectives”. Objectives are more specific expressions
of actions and things to be done. When objectives are set, specific “plans” are
made. Plans must be SMART (specific, measurable, attainable, realistic, and time-
bounded). There are plans in a department, division, unit or in whatever way the
organization is segmentized. These segmented plans are consolidated to become
organizational plans. All of these plans become basic guidelines for actions. Plans
must be expressed in monetary terms, to be objective and understandable. Plans
that are expressed in terms of money are called “budgets”.
 Organizing - involves coordinating a company’s diverse activities and human
resources to produce a smooth-running operation. This function relates to
implementing planned objectives, directing activities and motivating by providing
necessary incentives.
 Controlling - is the process of keeping the company’s activities on track. In
controlling operations, managers determine whether planned goals are being met.
When there are deviations from targeted objectives, they must decide what changes
are needed to get back on track.
In performing these functions, managers make decisions that have a significant
impact on the organization. Decision-making is an inherent management function
incorporated in each broad functions of planning, organizing and controlling.

PREPARED BY:

Ms. ARMI KATALBAS-BUYCO, CPA, MBA

Subject Professor

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