Management Accounting: Its Evolution, Importance, and Functions

This essay provides a detailed overview of the evolution of management accounting, tracing its origins from the 1700s through the 1900s. It highlights the impact of the Industrial Revolution and technological advancements on the development of management accounting practices. The essay discusses how management accounting evolved to meet the needs of various industries, including iron, textile, and railroads, by improving resource utilization, forecasting, and cost control. It also elaborates on the importance of management accounting in different types of organizations and its connection to various functions such as purchasing, production, marketing, human resources, and information technology. The essay concludes by emphasizing the role of management accounting in facilitating informed decision-making and strategic planning within businesses.

Evolution Of
Management
Accounting

Introduction
Management accounting is a part of accounting which is concerned with the
identification, analysis and measurement, observation of accounting data. This is done in
order to help the managers to make well informed decisions regarding day- to- day activities
of a business concern. The basic use of managerial accounting is to help the management in
the smooth functioning of its activities. The functions that are involved in it are planning,
organizing, directing and controlling. This report looks into the origin and evolution of
management accounting with the real examples and how it has originated from 1700s, 1800s
& in 1900s. Along with this, it also tells the usefulness of management accounting in
different types of industries. In addition to this, it also holds the discussion on various
functions of a company and how all such workings in a business firm are connected with the
management accounting.
Main Body
Explain the origin of management accounting with practical examples.
Discuss the evolution of managerial accounting from 1700s 1800s and 1900s.
Management accounting is the process of analysing the financial information so that
the strategic decisions can be taken. The evolution of this took place by the speedy
innovations and initiative in the information technology sector and recognized increase in the
competency in the market. In accordance with the International Federation of Accountants
that time frame before the first Management Accounting Rebellion was called as the
Classical period and it came to an end in late 1950s.
Its development in 1700s: The methods of book – keeping were not at all useful to the
business organization in the strategic decision making as late as the first industrial revolution.
The accounting reports were not useful in getting a discrimination on the capital expenditures
and revenue expenditures, not only this but they did not even provide for cost – splitting via
the different production ranges. All the mentioned reason, did not allow the company to make
profit on a product and investment on capital as well. When there was Industrial revolt in
United Kingdom then it came into urging or want for the better and maximum utilization of
the resources because they are scarce. In fact, they are not just scarce but also having
alternative uses. During the 1700s, a proof was found by the researchers with respect to the
existing of management accounting tool later to 1700s. The source of this evidence was the
stored and hidden data of those business enterprises that were dealing in the iron and textile
industries during this time period. This happened in Great Britain. Along with this,
management accounting firstly was seen in the United States in 1900s century. At this time
frame, the management accounting in a very refined manner which assisted in the evaluation

of prices, and determining the direct and indirect cost associated with the conversion of raw
material into finished goods.
During 1800s: In 1860s and 1870s , U.S. railroads expanded the concept of
management accounting so that it can help them in the forecasting and controlling policies in
large extent. It was done because the railroads have to encounter with the large and heavy
number of transactions. They created a mechanism for recording operating data for the
purpose of analysing and directing the results of their departments. Later on, there were
different industries involved in the large - scale production and distribution adopted the
method used by the U.S. railroads. The business units that were dealing in the production of
tobacco products, matches and photographic movies. The main thing was the coming of
fabric and metal- making industries as they were the good examples of significance of cost
accounting data for the management of business enterprises. It is also stated that the
expansion of the detailed cost recording and projection methods by the 1818s centered on the
direct labour and materials. This is so because, the organizations mostly depend on the money
in lieu of internal cost for raising an investment and to meet the upcoming uncertainties. For
such kind of choices, the impact of improvement in the operating profit ratio was considered
to be enough to command the decisions related the investments.
For 1900s: Cost accounting tool in the 1800s excludes the allocation of fixed cost to a
product. So it was found to be inappropriate. This is so because, the organizations mostly
depend on the money in lieu of internal cost for raising an investment and to meet the
upcoming uncertainties. For such kind of choices, the impact of improvement in the operating
profit ratio was considered to be enough to command the decisions related the investments.
Importance of management accounting in different types of organizations with
examples.
Elaboration on different functions of an organizations like purchase, production,
marketing, Human resources, Information Technology etc. and how they are connected
to management accounting.

CONCLUSION

References
Books & Journals