Management accounting

Management accounting

MANAGEMENT ACCOUNTING ASSIGNEMENT Differentiate between Management Accounting, Cost Accounting and Financial Accounting A manager accountant has to be aware of three very close, but not similar, areas in accounting : Management Accounting, Cost Accounting and Financial Accounting. The main differences lie in their final purpose and the people mainly concerned and interested in the results but they are all complementary and necessary phases for the companies.

According to the Chartered Institute of Management Accountants (CIMA), Management accounting is “the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources. In other words, Management Accounting provides the essential data which the organizations need to increase and optimize profits.

It provides information to managers, that is to say people inside an organization for planning, directing and motivating, controlling and performance evaluation. The latter is meaningful for the differentiation between Management Accounting and Financial Accounting, because even if they both rely on the same financial data, Financial Accounting reports are prepared for people outside the organization, non-management groups such as shareholders, creditors, tax authorities and regulators.

Another important difference is the emphasis on

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summaries of the past activities whereas in management accounting aims at orientating the decisions for the future. Moreover, Financial Accounting reports require precision in the information whereas timeliness of information is required in Management Accounting (still due to the decision-making). Finally, Financial Accounting must follow Generally Accepted Accounting Principles (GAAP) in opposition to Management Accounting which has no need to follow these rules.

The last difference is that Financial Accounting proposes only summarized data for the whole organization whereas Management Accounting comes with detailed segment reports about departments, products, customers, and employees are prepared. Cost Accounting is one of the components of Management Accounting. According to J. W. Neuner It is the process « of measuring, analyzing, computing, and reporting the cost, profitability and performance of operations » and it aims at the calculation of all the costs related to the production or sale of article or service.

List and describe each of the seven factors involved in the decision-making, planning and control process. The first factor is the identification of the objectives, needs and expectations. This is an essential and a crucial step because decision-makers have to know what they want to achieve and it helps them to follow a critical path method directly linked to the objectives they want to reach. The second one is the gathering of data. The third factor deals with the research of alternatives : it means that the team rainstorms in order to develop the largest range of possible alternatives, actions which also could be efficient to get the expected results. The fourth factor is the selection of the best solution. After having listed the pros and cons of each alternatives, we have to choose the best strategy, the one which can allow us to reach our objectives. In other words, the fittest one. The fifth factor concerns the implementation of the decision. At this stage, it is necessary to create a budget and have a financial plan in order to implement the decisions previously taken.

The sixth factor is the comparison between the current outcome and the planned one. It is about a control of the performance of the selected strategy. It comes up with the achievement of the objectives. The last one is the experience that the company gained by the use of this plan. It is helpful for the future to analyze what were the problems we had to face during the implementation of the strategy, what was our reaction to solve them and if the responses proposed were the better ones. . Describe the functions of a Management Accounting system A Management Accounting system aims to determine the costs for the production of the goods and those for the report needed by management and non-management groups (inside and outside groups of people). It provides information to managers helping them to plan, control and assess the performance of the firm as whole(for Financial Accounting) and for each and every departements or sectors(for Management Accounting).