Management Accounting Report: Functions, Principles, and Systems

This report provides a comprehensive overview of management accounting, focusing on its definition, principles, and functions within an organization. It explores how management accounting aids in decision-making, planning, and control, highlighting key principles such as communication, relevance, value, and trust. The report delves into the functions of management accounting, including data presentation, planning and forecasting, operational control, and decision support. Furthermore, it examines the essential requirements of various management accounting systems, such as cost accounting, price optimization, inventory management, and job costing. The conclusion summarizes the importance of management accounting for rational decision-making. The report includes references to relevant academic sources.

MANAGEMENT ACCOUNTING

Table of content
 Introduction
 Main body
 Conclusion
 References

INTRODUCTION
 Accounting management is the systematic presentation of accounting information, the
purpose of which is to help managers in their decision making process.
 The report will cover the meaning, principles and functions of management accounting.
Essential requirements of different management accounting systems will be highlighted in
this presentation.

Definitions of Management Accounting
 The Chartered Institute of Management Accounting (CIMA, 2000) refers to
management accounting as the “procedure of determination, evaluation, gathering,
examination and preparation, interpretation as well as communication of data which are
used by management in order to plan, measure as well as control within an entity.
 Institute of Management Accountants (IMA, 2009) stated that it as “ a occupation that
includes associating management in devising planning, decision making, as well as
performance management systems, along with delivering knowledge in fiscal reporting and
control to help management in the preparation and application of strategies of company ”.

To be conti…
 American Institute of Certified Public Accountants (AICPA, 2012) provides a
definition that includes management accounting as strategic management, risk
management and performance management.

Principles of Management Accounting
Management accounting has the following principles that are discussed below:
 Communication : It is one of the principles of management accounting
which states that data is translated into meaningful information by the way
communication
For example, budgets, estimated cash flows are prepared on the basis of reports
and information which are then communicated throughout the organisation for
achieving cost efficiency in operations.
 Relevance : This principle states that information must be relevant
For example, a cost accountant in ..... preparing budgets, cash flows and
estimated cost sheets on the basis of historical costs, depreciation etc. which are
not relevant costs for taking present decisions by the managers in company.

Cont…
 Value : This principle involves the analyzing and interpreting the impact on value.
For example, capital budgeting is used for examining the viability and feasibility of large
projects or acquisition of a capital assets by the company. It analyses the cost and benefits of
such expenditure by taking their present value in consideration.
 Trust : Management accounting's trust principle states that scrutiny and accountability in
organization helps in building decision making process more reliable in nature.
For example, employees preparing management reports is supposed to have applied the legal
requirements such as principles, standards and have taken care of organisation's value. Such
reports builds trust in senior authorities that they can rely on such information and form
decisions more optimally.

Functions of management accounting
Management accounting performs various function
in the Lailas fine food company that are mentioned
below:
 It performs the function of presenting data:
For example, profit and loss and balance sheet
cannot be used by management for forming policies
and strategies, it has to be modified with relevant
data and accordingly be interpreted so that
purposeful conclusions could be drown out of it.
 It helps in Planning and forecasting.
For example, manager in the company applies
capital budgeting techniques for evaluating the
variability of capital expenditure or an investment
in terms of its costs and benefits.

Conti…
 It Controls the operations of the company.
For example budgets such as cash budget, capital expenditure budget, operating budgets such
as sales, marketing etc., are prepared by each department. These budgets acts as a guide for the
managers in Lailas Fine Food company within they undertake their expenses.
And if the actual expenses deviates largely from the budgeted costs and expenses, the reasons
for such deviations are found out and corrective actions are taken for controlling the excess
expenses.
 It helps in Decision Making process.
For example: : Proper analysed and interpreted data related to company's financials helps in
forming quality decisions by the mangers

Conti…
 Act as communication tool in the company.
For example : The reports are communicated to the superior authorities in the company, it is
also used for motivating employees in the organisation.
 Tax policies formulation
For example, the accountant in Lailas Fine Food company prepares all the necessary rules and
provisions so that quarterly or half yearly payment of tax could be easily done.

Essential requirements of different management accounting
systems
Cost Accounting system
Essentials :
 A certified and trained cost accountant.
 A proper integrated accounting software for recording and preparing the reports.
Price optimization
Essentials:
 Certified professionals
 Support from cost accounting system, inventory management accounting, and other
functional departments for setting the appropriate prices of the product.

To be conti…
Inventory management accounting system
Essentials:
 An inventory manager and supporting staff for effectively carrying out operations
 A proper integration of accounting system with order management system
Job Costing
Essentials:
 An integration with the main accounting system
 Relevant and reliable data related to that job
 Coordination amongst different department of company.