Management Accounting: Functions, Systems, and Applications

This report provides a comprehensive overview of management accounting, defining it as a methodical system for recording business transactions and dividing it into financial, management, and cost accounting. It details the characteristics of management accounting, emphasizing its role in decisi...Read More

MANAGEMENT ACCOUNTING
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Table of content
1. What is accounting?
2. Characteristics of management accounting
3. Function of Management Accounting
4. Management accounting systems
5. Advantages of Management Accounting System
6. Application of Management Accounting Information
7. Connection Between Management Accounting and
Management Accounting Systems

What is accounting?
 Accounting is a methodical and a wide-ranging method of recording
the transactions relating to a business. (Investopedia, 2017)
 This also aims to keep economic transactions with regards to the
resources.
 Therefore, can be categorized under the economics too.
 Accounting is further divided in to three categories.
accounting
Financial AccountingCost accounting Management accounti

Readers Notes
Financial Accounting – the recording of the financial
transactions that are related to a business for a particular
year to show the profits and losses with the assets and
liability context within a company. (Investopedia, 2017)
Management Accounting - this is the preparation of
management reports that will help the day today decision
making by the use of external and internal information
consisting both financial and non financial data.
(BusinessDictionary.com, 2017)
Cost Accounting – this is the procedure of the estimation
of any costs regarding the products or services of a
company.

Characteristics of management
accounting
(Atkinson, Kaplan and Matsumura, 2012) The information provided by management accounting will be based on the financial
and cost accounting data and being further evaluated.
 The key objective of management accounting is to provide information relent for
decision making and achieving the core objectives.
 Deliver a basis to the corporate strategy of a business
 Management accounting will use sophisticated evaluating techniques to assess, govern
and design the strategies
 Management accounting is a pre-emptive method rather than a responsive method like
the financial accounting
 Management accounting will prepare reports on different matters for the company with
strategic solutions.

Function of Management Accounting
Function of management accounting
Executing strategyMeasurement of the performanceMaking the DecisionsSupply chain study
Looking for possible
cost reductions from
the vendor’s side
and offering these
benefits for the
customers
During the execution of
certain strategies,
providing the relevant
strategic decisions and
information
Measure the
performance of the
company in
comparison with the
competitors of even a
projects intended
outcomes
Help in making the
Day today
decisions that
needs for the
survival of the
company

Readers Notes
 Management Accounting will recognize, evaluates and reports both
the financial and non financial info that assists directors and the
managers in taking the relevant decisions regarding the
maximization of the wealth of the company.
 Managers will use these management accounting info to select,
interconnect and employ several strategies within the company.
 The main focus of Management accounting is the internal reporting.
The above said facts will outline the functions of the Management
Accounting
(Barnwell, 2008).

Management accounting systems
 A management accounting system will gather data from different
parts of an organization and convert these in to readable and
valuable information (Bhimani, 2015)
 The information gathered will help in making decisions and effective
use of the resources within the organization to add value
 The following will be vital in the management accounting systems.
 Staff
 Technological aspects
 Financial transaction within the business
 Management accounting tools
 Cost accounting information
 Management reports

Relationship of Accounting and
Management Accounting System

Advantages of Management Accounting
System (Hansen, 2004)
Advantage Explanation
Goal congruency Will give a common goal for all the departments to follow so the objectives will
not defer from that pf the company’s
External focus Will focus on the external environment when gathering data. This will enable to
identify the external changes quickly
Future outlook Management accounting systems will look at past data and will predict the
future outcomes that will help in decision making
Time factor Traditional accounting will focus on the cots after the production but
management accounting system will focus about costs in the planning stage
Ability to control Concepts such as activity based costing and customer profitability will allow the
managers to monitor closely about the overheads
Non financial
information
Management accounting systems will provide non financial information that will
be vital in decision making

Applications of Management Accounting
Information (Barnwell, 2008)
Applications of Management accounting information
Measurement
ControlDecision making
Measurement of
indirect and
direct costs in
calculating the
total cost
Comparison
between the actual
and budgeted
costs for
responsibility
centers
Management
decisions such as
lease or buy,
invest or not in a
new project,
funding methods

Connection Between Management
Accounting and Management Accounting
Systems (Hansen, 2004)
Role of management accounting
Management information Provision of necessary information for the preparation of profit
forecasts, variance analysis etc.
Operational information Provision of information related to the operational activities such
as the quantity, units, time etc.
Measurement of
performance
KPIs and other targets to measure the relevant performance
within a responsibility center
Modern aspects (JIT, TQM) Constant information provision such as efficiency, number of
batches to ease the processes.
Strategic information Information for the top management such as costs analysis,
shareholder returns, customer profitability etc.

Absorption costing

Marginal costing

References
 Investopedia, (2017). Financial Accounting. [online] Investopedia. Available at:
http://www.investopedia.com/terms/f/financialaccounting.asp [Accessed 8 Jun.
2017].
 BusinessDictionary.com. (2017). What is management accounting. [online] Available
at: http://www.businessdictionary.com/definition/management-accounting.html
[Accessed 8 Jun. 2017].
 Atkinson, A., Kaplan, R. and Matsumura, E. (2012). Management accounting. 1st
ed. Harlow (England): Pearson Education.
 Barnwell, H. (2008). CIMA. 1st ed. Oxford: Elsevier.
 Bhimani, A. (2015). Management and Cost Accounting. 1st ed. Pearson Education
Limited.
 Hansen, D. (2004). Management accounting. 1st ed. Australia: Thomson Nelson.
 Horngren, C. (2017). Cost accounting. 1st ed. [S.l.]: Pearson.

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