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Defining management accounting The provision of financial and non-financial information to managers for cost accounting. Management accounting can be subdivided into: ± Cost accounting ± Management accounting for decision making Accounting ± Cost and Management Accounting . planning and control and decision making.
Why was it necessary? Management accounting developed in the late 19th century out of financial accounting because more detailed and timely information was needed for costing and decisions making This was a recognition of the limitations of financial accounting for decision making purposes Statements produced by financial accounting ± are out of date by the time they are available ± are orientated towards the past ± involve a high level of aggregation (whole organisation rather than individual section of product) Accounting ± Cost and Management Accounting .
to produce detailed forecasts.the importance of eliminating waste Need for a positive return .to control costs.Increased relevance of management accounting Customer orientation and the emphasis on customer satisfaction . and improve the quality of decision making Globalisation .requires greater responsiveness from business Lean production including just in time and time based competition .increase need to be competitive Accounting ± Cost and Management Accounting .
More definitions of management accounting Accounting carried out within the a business for its own internal uses. generation. to assist management in controlling the business and in making business decisions The provision of financial and non-financial information to management for costing. requiring the identification. interpretation and use of information (CIMA) Accounting ± Cost and Management Accounting . and decision making Management accounting is an integral part of management. presentation. planning and control.
Key points from the definitions Designed for internal management purposes Involves the provision of both financial and non-financial information Emphasis on: ± decision making ± identifying and calculating costs ± controlling costs ± the future rather than the past ± ensuring efficient use of resources Accounting ± Cost and Management Accounting .
Accounting ± Cost and Management Accounting . calculating and controlling costs The determination of selling price Budgets to co-ordinate activities The making of investment decisions.Management accounting deals with« The preparation of budgets to prepare future plans Setting and controlling budgets The comparison of results with forecasts contained in budgets Forecasting and controlling cash flow Classifying.
Management accountants Specialists in the provision of financial information for use within the business. They are involved in: ± ± ± ± ± the formulation of strategic plans to meet objectives the formulation of short-term operational plans communication of financial and operating information corrective action to bring plans and results into line reviewing and reporting on operations Accounting ± Cost and Management Accounting .
Decision making Short term Costing for the purpose of price setting Break even analysis Contribution analysis Make or buy in Product deletion Efficient management of working capital Stock control Long term Strategic accounting Objective setting SWOT analysis Balance scorecard Capital budgeting Long term finance Accounting ± Cost and Management Accounting .
information from a variety of internal and external sources Relevance .applicable and appropriate data Reliability .confidence in the quality of the data This in turn is dependent on its source.Underpinning concepts Accountability .controllable and non-controllable Interdependency .identify responsibility Controllability . integrity and comprehensiveness Accounting ± Cost and Management Accounting .
Definitions of cost accounting The classification. recording and appropriate allocation of expenditure in order to determine the total cost of products or services Costing is the ascertaining of the amount of expenditure incurred on a single item or group of items or activity The function of cost accounting is to collect data concerning costs Accounting ± Cost and Management Accounting .
recovering costs as the basis for pricing and stock valuation Planning and control ± planning and controlling future costs using budgeting and standard costing Accounting ± Cost and Management Accounting . Costing. budgeting and standard costing ± the process of identifying and summarising the costs associated with business operations.Cost accounting This involves: ± the determination of actual and standard costs.
Role of cost accounting«to Identify profitable and unprofitable activities Identify waste and inefficiency Support cost reduction programmes Analyse movements in profit Estimate and fix selling price Value stocks Develop budgets and standards to assist planning and control Evaluate the cost effects of policy decisions Accounting ± Cost and Management Accounting .
Financial accounting (FA) Information is produced primarily for external stakeholders Purpose: reporting back to owners and others Covers the past . consistent.what has happened Covers the whole company . verifiable. accurate data The end product is the annual reporting package Accounting ± Cost and Management Accounting .not divisions or departments Subject to accounting regulations and law Quantifies information in monetary terms and values Emphasis: objective.
instead the information is used for costing. departments or units within the firm Information prepared when needed Both monetary and non-monetary information No set rules and regulations on format Accounting ± Cost and Management Accounting .management accounts are private documents Not so much concerned with recording . planning.Management accounting (MA) Provides information for internal decision making Internal use . control. decision making Focuses on the present and future Covers divisions.
How MA differs from FA Is non-mandatory .as it purely internal it is not required by statute and not subject to outside control as to method Involves a greater range data Includes the use of non-monetary data Includes the use of qualitative data Deals with forecast and plans rather than what has happened Is designed for internal use rather than reporting to stakeholders Accounting ± Cost and Management Accounting .
Comparison: a summary Financial accounting Users Time focus Governed by Format Coverage Purpose External Past Regulations Standard Whole company Reporting back Management accounting Internal Present and future The needs of management Flexible The unit To aid decision making Accounting ± Cost and Management Accounting .