Unit 1 – Introduction to Management and Cost Accounting

Management Accounting

Management Accounting can be defined as the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of financial information, which is used by management to plan, evaluate and control within an organization.

Financial Accounting vs Management Accounting

Financial Accounting is mainly concerned with the historical aspects of external reporting, that is, providing financial information to outside parties such as investors, creditors and the government. To protect these outside parties from being misled, financial accounting is governed by what is called International Financial Reporting Standards (IFRS). Management Accounting on the other hand is concerned primarily with providing information to internal managers who are charged with planning and controlling the operations of the firm and making a variety of management decisions. Due to its internal use, management accounting is not subject to IFRS. More specifically, the differences between financial and management accounting are summarized below:

Financial Accounting Management Accounting

Provides data for external users Provides data for internal usersIs subject to IFRS Is not subject to IFRSMust generate accurate and timely data Emphasizes relevance and flexibility of

dataEmphasizes the past Has more emphasis on the futureLooks at the business as a whole Focuses on parts as well as on the whole of

a businessPrimarily stands by itself Draws heavily on other disciplines such as

finance, economics, and operations research

Is an end in itself Is a means to an end

Management Functions

In general, the work that management performs can be classified as:(a) Planning. (b) Coordinating(c) Controlling(d) Decision-making

PlanningThe planning function of management involves the selection of long-range and short-term objectives and the drawing up of strategic plans to achieve those objectives.

CoordinatingIn performing the coordination function, management must decide how best to put together the firm’s resources in order to carry out established plans.

ControllingControlling entails the implementation of a decision method and the use of feedback so that the firm’s goals and specific strategic plans are optimally obtained.

Decision-makingDecision-making is the purposeful selection from among a set of alternatives in light of a given objective.