MANAGEMENT ACCOUNTING

HAROON AKRAM CHEEMA

UNIT 5
MISS RABIA ABDULLAH

Learning outcome 1:
What is management accounting?

Management accounting is also called managerial accounting or cost accounting. It is the

process of analyzing business costs and operations to prepare internal financial report,
records, and accounts to help managers in decision making process in achieving business
goals.

What Is Management Accounting System?

Managerial accounting consists of an internal system used by an organization to measure

and evaluate an organization's management practices. Financial accounting offers data to
outside the organization, such as stockholders and lenders.

Why is it important to integrate these within an organization?

Integration and coordination are essential in the organization as they demonstrate the
ability to guide decision-making staff. When executives do not meet on the same page
and do not implement a business strategy, employees lose confidence in the
organizational capabilities of their managers.

Origin, role and principles of management accounting:

Origin:

Some people attribute the need for data to improve financial resources in the UK during
the Industrial Revolution at the beginning of accounting management (Edwards, Boines,
Anderson 1995). Others, such as Chandler (1977) and Johnson and Kaplan (1987), point
out that the creation of a large number of companies absorbing market prices was the
reason for their growth. He thinks that the arrival of rail and telegraph is immediate. It
happened in the United States soon after. Another factor is that accounting begins when it
is used for cost control purposes, especially when accounting data is used to address
human responsibility (Huskn and McVei, 1988).

Role:

The function of the accountants in management is to perform a number of obligations to

ensure the financial security of your business, essentially by managing all financial
matters, thus contributing to the control of the management and policies of the company.

Principles Of management accounting:

Reason and equality are the principles of management accounting, which are the basic
principles.

 Causality Principle:

The reasoning principle establishes cost models based on the relationship between
resource inputs and the outputs involved in the production of the products and
services they provide. This is often easier when it comes to strong causal reactions
(i.e. the product is a raw material). However, costs must be determined in the
event of poor working relationships. Costs must be attributed to the notion of
commitment, which preserves the integrity of the cause.

• Analogy Principle:

The underlying principle is to apply understanding or ideas from relationships

(such as planning, control, analysis if) to models that use effective and attractive
thinking about past and future outcomes. Management controls the ability of the
user to provide accounting information for continuous improvement efforts.

Differences between management and financial accounting:

Financial accounting is usually calculated by combining accounting data into financial

statements, while management accounting is related to the internal procedures used to
perform company functions.

There are several differences between management and financial accounting that fall into
the following categories:

• Aggregation:

Financial accounting reports on the results of the company as a whole.

Management accounting reports at the most comprehensive level, such as product,
product line, customer and geographic revenue, almost always.

• Efficiency:

The financial statements reflect the profitability (and thus the efficiency) of the
business, while management is specifically informed of the causes of the problem
and how it can be resolved.

 Proven information:
 Financial accounting requires high-precision documents, which is necessary to
show that the accounts are correct. Management accounting is often based on
assumptions rather than actual and true facts.

• Reporting focus:

Financial accounting aims to create financial statements distributed inside and

outside the company. Operating accounts allocated to a single company are more
problematic than management accounting.

 Standards:

Financial accounting must conform to several accounting standards, while for

internal consumption when collecting data, accounting management does not have
to comply with any of the rules.

 System:

Financial accounting does not pay attention to the overall system that a company
does solely for profit. Management, meanwhile, seeks to identify barrier activities
and various ways to maximize profits by removing accounting barriers.

• Time period:

Financial accounting deals with the financial results of a company that has already
done them. They therefore have a historical tendency. Management accounting
can submit budgets and forecasts and can therefore be adjusted in the future.

• Time:

Financial accounting involves the submission of financial statements at the end of

the accounting period. Administrative accounting can often generate reports
because the data indicates whether the manager is able to see them immediately.

 Evaluation:

Financial accounting deals with the fair value of assets and liabilities, including
impairments, revaluations, and so on. The importance of these products, and not
just their production, is governed by accounting.

Benefits of different types of administrative accounting systems:

Cost accounting system;

1. Measure and improve performance.

2. Price setting

3. Proper planning information.

4. Production expansion

Inventory Management System;

1. Achieve operational efficiency and productivity.

2. Minimize inventory costs and maximize profits and sales.

3. Merge your entire company.

4. Manual work automation.

Job costing system;

1. It provides a complete analysis of the cost of goods, salaries, and overheads

ranked by the nature of tasks, departments, and costs that will allow management
to determine the operating performance of various production factors,
manufacturing centers, and operational units. Lets do

2. It accurately records costs and facilitates cost control by comparing actual

estimates with estimates.

3. This helps management determine which job is more profitable than others, which
is less profitable and leads to losses.

4. It offers a foundation for estimating the future costs of competitive employment

and therefore assists in planning future production.

Cost improvement system;

1. Instant economic benefits

2. Better and faster selection.

3. Automate the entire process.

Presenting financial information.

Why is the information user-friendly, reliable, up-to-date and accurate?

Decision-makers must have confidence in the accounting data provided by accounting. A

company may choose its financial statements and other accounting information to opt for
these options. This can affect his professional situation. The key is to obtain accurate
accounting information via the sources used to move the business. Key features of
accounting include consistency, reliability, physical meaning, and consistency. If they are
in progress, they are more reliable and can benefit from better decisions.

Why the way in which the information is presented must be understandable?

Transactions and events must be calculated and presented in the financial statements in
such a way as to be easily understood by the user with the appropriate level of economic,
business and accounting knowledge, provided that the user is conscientiously diligent and
willing to learn. Understanding the information in the financial statements is essential for
their relevance to consumers. While accounting and related information and its recent
aspects are extremely difficult to understand, despite accurate knowledge of the entity
and accounting, consumers are forced to do so economically, which will undermine the
credibility of their financial statements as a whole. Check the non-dependent data.