Management Accounting: Introduction, System, Importance, Roles, Principles

This presentation provides an introduction to management accounting, including its system, importance in an organization, roles, and principles. It also compares management accounting with financial accounting. The presentation covers various aspects of management accounting and its relevance in decision-making processes.

Unit 5: Management Accounting

INTRODUCTION
 Management accounting is a branch of accounting which deals with the
management of business processes.
 This presentation covers introduction to management accounting, management
accounting system, importance of integrating it in an organization.
 It also includes roles and principles of management accounting and comparing it
with financial accounting.

MANAGEMENT ACCOUNTING
Management accounting is the process of providing the different information and resources related to
finance to manager in organization, so that manager can make different decision in organization.
Management accounting is used by internal team of organization.
In management accounting, financial information, invoice and different financial information is shared by
with the management team of organization.
According to Malina (2018), management accounting is the application of professional skills in the
formulation and preparation of management plans and policies.

MANAGEMENT ACCOUNTING
SYSTEM
Management accounting system is a system that are implemented to provide information to financial
information which are created for the internal use by the managers.
This report is used in decision-making and helps in identifying the ways to run the organization smoothly
and efficiently.

Importance of integrating management
accounting in an organization
Management accounting aims at providing useful information to the manager which helps in making
proper decisions. Some importance of management accounting is stated below.
Helps in forecasting future: It helps in forecasting future trends that may affects the business. It
helps in taking decision regarding whether to invest in new equipment, diverse the market, merge
or acquire another company etc.
Helps in make or buy decision: In this, cost and availability are the two important factors.
Management accounting draws insights about whether to procure the product from the external
sources or to manufacture the material in-house and other operational and strategic decision-
making process.

Origin, role and principle of management
accounting
Origin
Management accounting had its origin from financial accounting but still both are very different and
more focus was placed on financial accounting.
Role
• Collecting, analyzing and reporting the data and allocating funding to different departments.
• It includes estimation of cost related to material, labor, advertisement etc.
• To maintain a coordination with other departments to analyze the functioning of the company.

Difference between management and
financial accounting
Basis of comparison Management Accounting Financial Accounting
Purpose To carry out planning, controlling and
decision-making process.
To know the financial performance and
financial position of the business for a
given period.
Users For internal use only like managers,
employees etc.
For external use only like shareholders,
government, lenders etc.
Mandatory Preparation and presentation of financial
statement is not required.
It requires preparation and presentation of
financial statements.
Nature of information It requires both financial and non-financial
information.
Only financial information is required.

Types of management accounting principles
There are different types of management accounting systems used by businesses. A detailed description is
given below.
Cost accounting system: It is an accounting system that is used in estimating the cost of the product and
services for profitability analysis, cost control and inventory management.

Relevance, reliability and accuracy of the
information
• The three most important characteristics of accounting are relevance, reliability and accuracy.
• When the information is timely and relevant to the industry in which business operates helps users of the
information to take thoughtful decisions and project about the business.
• By comparing current facts and figures with the previous year.
• Reliability refers to the accuracy of the data which are very crucial in decision-making process.
• The data is required to be accurate which can be through proper documentation or proof so that users such
as shareholders, creditors, government, customers can rely on it and take proper decision.
• Accuracy refers to authentication of the information and its should be up to date as discrepancy in
information may lead to wrong decision and loss to the user of the information.

Way of presentation of information
• Understandability is one of the important concept of accounting, should be presented in a such a way that
the user of the information can draw some insight from it.
• The company should prepare financial statements and reports that can be understood by the users, it should
not be confusing and users can easily interpret in the right form.

Types of managerial accounting reports
• Management accounting reports are used by the management to undergo planning, controlling, measuring
performance and taking decisions.
• There are different types of reports that are prepared to gain some useful information. Some reports that are
commonly prepared are stated below.
• Budget reports: Preparing budgets is the important role of management accounting. It is prepared using data
from previous year and taking into consideration the future trends.
• It presents all source of earnings and expenditure which helps in achieving goals.

CONCLUSION
It can be concluded that management accounting plays an important role in an
organization.
It helps in understanding cost factors and different management reports which helps in
achieving the goals.

06/12/

REFERENCES
Malina, M. A., 2018. Advances in Management Accounting.
Tenhunen, M. L., 2018. THE IMPORTANT NEED OF GENERAL ACCOUNTING AND
MANAGEMENT ACCOUNTING. Euromentor Journal-Studies about education. 9(04).
pp.37-43.
Management Accounting – Meaning, Advantages & Functions. 2019. [Online]. Available
Through:<https://cleartax.in/s/management-accounting>.
Wegmann, G., 2018. A Typology of Cost Accounting Practices Based on Activity-Based