Tito, Cathlene C.
BSA-2 AUGUST 28, 2019
MANAGEMENT ACCOUNTING
HISTORY
Managerial accounting has its roots in the industrial revolution of the 19th century. During this early period, most firms
were tightly controlled by a few owner-managers who borrowed based on personal relationships and their personal
assets.
Since there were no external shareholders and little unsecured debt, there was little need for elaborate financial reports.
In contrast, managerial accounting was relatively sophisticated and provided the essential information needed to manage
the early large scale production of textile, steel, and other products. After the turn of the century, financial accounting
requirements burgeoned because of new pressures placed on companies by capital markets, creditors, regulatory bodies,
and federal taxation of income. Johnson and Kaplan state that “many firms needed to raise funds from increasingly
widespread and detached suppliers of capital. To tap these vast reservoirs of outside capital, firms’ managers had to
supply audited financial reports. And because outside suppliers of capital relied on audited financial statements,
independent accountants had a keen interest in establishing well defined procedures for corporate financial reporting. The
inventory costing procedure adopted by public accountants after the turn of the century had a profound effect on
management accounting. As a consequence, for many decades, management accountants increasingly focused their
efforts on ensuring that financial accounting requirements were met and financial reports were released on time.
In the early part of the century, as product line expanded operations became more complex, forward looking companies
saw a renewed need for management-oriented reports that was separate from financial reports. But in most companies,
management accounting practices up through the mid-1980s were largely indistinguishable from practices that were
common prior to World War I. In recent years, however, new economic forces have led to many important innovations in
management accounting.
DEFINITION
Managerial Accounting focuses on providing information for use by internal users, the management. This branch of
accounting deals with the needs of the management rather than strict compliance with generally accepted accounting
principles.
(Branches/Types of Accounting-AccountingVerse accountingverse.com)
(Ray H. Garrison Eric W Noreen 1999)
Managerial accounting is managers oriented therefore its study must be preceded by some understanding of what
managers do, the information managers need, and the general business environment.
FUNCTIONS
Managerial accounting involves collecting, analyzing, and reporting information about the operations and finances
of a business. These reports are generally directed to the managers of a business, rather than to any external
entities, such as shareholders or lenders. The functions of managerial accounting include:
Margin analysis . Determining the amount of profit or cash flow that a business generates from a specific
product, product line, customer, store, or region.
Break even analysis . Calculating the mix of contribution margin and unit volume at which a business
exactly breaks even, which is useful for determining price points for products and services.
Constraint analysis . Understanding where the primary bottlenecks are in a company, and how they impact
the ability of the business to earn revenues and profits.
Target costing . Assisting in the design of new products by accumulating the costs of new designs,
comparing them to target cost levels, and reporting this information to management.
Inventory valuation . Determining the direct costs of cost of goods sold and inventory items, as well
as allocating overhead costs to these items.
Trend analysis . Reviewing the trend line of various costs incurred to see if there are any unusual variances
from the long-term pattern, and reporting the reasons for these changes to management.
Transaction analysis . After spotting a variance through trend analysis, a person engaged in managerial
accounting might dive deeper into the underlying information and examine individual transactions, in order to
understand exactly what caused the variance. This information is then aggregated into a report to management.
Capital budgeting analysis . Examining proposals to acquire fixed assets, both to determine if they are
needed, and what the appropriate form of financing may be with which to acquire them.
Functions, Tasks, Elements And Principles Of Managerial Accounting At Public Higher Education
Institutions
S. Svirko-T. Trosteniuk - Ekonomika ta derzhava – 2019
CHARACTERISTICS
Decision-making system: The financial data provided by the management accounting, is helpful to the
management in framing policies and assisting the day to day operations.
Future-oriented: Management accounting is future-oriented as it helps in planning and deciding the future
course of action.
Qualitative and Quantitative Information: In management accounting, qualitative information relating to
the performance of the managers and other staff is also considered, along with the other financial data.
No set format: There is no set format for the disclosure of the information. Management accounting usually
presents information in the form which is easily understandable to the managers and other users.
Discretionary activity: Management accounting is not compulsorily required by the statute. Indeed,
management accounting is done as per the requirement of the organization and hence, it can be done weekly,
monthly, quarterly, half-yearly, etc.
TECHNIQUES
The following tools and techniques are used in management accounting for better decision making:
1. Financial Planning: Financial Planning refers to the activity of deciding beforehand, what is to be done to reach
the desired financial objectives, i.e. it is the process of managing the finances of the organization to get the maximum
return. It includes cash flow planning, investment planning, tax planning, etc.
2. Financial Statement Analysis: It refers to the process of analysing the financial data of the organization for
rational decision making. This includes comparative statement analysis, ratio analysis, cash flow analysis, trend analysis,
etc.
3. Statistical and Graphical Techniques: Various statistical and graphical techniques are used by the
management to make better economic decisions. These techniques include statistical quality control, linear programming,
investment chart and so forth.
4. Control Techniques: Standard costing and budgetary control are the techniques used by the management to
keep a check on the utilization of resources.
5. Reporting: The management accountant processes the data and presents it in reports to provide the relevant
information required by the managers.
Therefore, the data available with the help of management accounting must be relevant and precise, presented in an
understandable format, consistent and comparable, and it is available at regular time intervals.
URL: https://businessjargons.com/management-accounting.html
Website Title: Business Jargons
Publication Day: 19
Publication Month: February
Publication Year: 2019
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Article Title: What is Management Accounting? definition, characteristics and techniques
USERS:
Inside the Organization
ACCOUNTING RULES:
None
TIME HORIZON:
Future Projections (sometimes historical in a detail)
LEVEL OF DETAIL:
Often presents segments of an organization (e.g. products, divisions, departments)
PERFORMACE MEASURES:
Financial and Nonfinancial
URL: http://www.saylor.org/books
Website Title: Saylor Academy
Access Day: 25
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Article Title: Saylor Academy Open Textbooks
WHO IS A MANAGEMENT ACCOUNTANT?
The management accountant designs the format of the financial and cost control reports. These reports are
presented before each level of management with the most useful data at the most appropriate time. Moreover, he/she
educates management executives as the ways of using reports. Hence, sometimes, he/she described as the Chief
Intelligence Officer of the top management.
PRIMARY TASKS/SERVICES PERFORMED BY MANAGEMENT
ACCOUNTANTS.
The degree of complexity relative to these activities are dependent on the experience level and abilities of any one individual.
• Rate and volume analysis
• Business metrics development
• Price modeling
• Product profitability
• Geographic vs. industry or client segment reporting
• Sales management scorecards
• Cost analysis
• Life cycle cost analysis
• Client profitability analysis
• IT cost transparency
• Capital budgeting
• Buy vs. lease analysis
• Strategic planning
• Strategic management advice
• Internal financial presentation and communication
• Sales forecasting
• Financial forecasting
• Annual budgeting
• Cost allocation
URL: https://accountlearning.com/who-is-a-management-accountant-role-in-management-
functions/
Website Title: Money Matters | All Management Articles
Publication Day: 12
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Publication Year: 2017
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Article Title: Who is a Management Accountant: Role in Management: Functions
“Being principles-based, the statement aspires to be broadly applicable, easy to understand, and helpful for management
accountants in their efforts to serve as leaders of integrity and ethics,” said Edward Manley, CPA, current chair of the IMA
Committee on Ethics.
THE SPECIFIC ETHICAL STANDARDS FOR MANAGEMENT ACCOUNTANTS
INCLUDE:
1. Competence. Enhance knowledge and skills, perform professional duties in accordance with relevant laws and
regulations, make recommendations that are accurate and timely, and recognize and help manage risk.
2. Confidentiality. Information should be confidential unless disclosure is legally required or authorized, let relevant
people know the importance of confidential information, and refrain from using confidential information in illegal or
unethical ways.
3. Integrity. Mitigate conflicts of interest or warn of possible conflicts of interest, refrain from engaging in any conduct
that would prevent the ethical performance of duties, avoid activities that would discredit the profession, and place ethics
and integrity of the profession above personal interests.
4. Credibility. Communicate fairly and objectively, provide all relevant information that could influence a user’s
interpretation and understanding of the reports or analyses, report any delays or deficiencies in information according to
law or the organization’s policies, and communicate professional limitations or other constraints that would affect
responsible judgment or successful performance.
URL: https://www.accountingweb.com/practice/practice-excellence/ima-updates-its-ethics-code-
for-management-accountants
Website Title: AccountingWEB
Publication Day: 18
Publication Month: July
Publication Year: 2017
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Article Title: IMA Updates its Ethics Code for Management Accountants
THE 3 PILLARS OF ACCOUNTING
Management Process is defined as activity which involves Planning, Controlling and Decision Making. Management
Process describes functions of a manager and functions to enable the workers.
Planning
is a detail formulation of activity to achieve defined goals. Planning requires clear goals and the identification of method
to achieve those goals. As an example a factory manager can initiate a supplier evaluation program to identify and select
suppliers who are willing and able to supply zero defect material. By promoting workers enablement, workers can identify
the cause of defective materials or products and create a new method to reduce waste and product reworking.
Controlling
is a managerial activity to monitor the implementation of the plan and to make corrective actions whenever required.
After a plan is made, the plan should be implemented; manager and workers need to monitor the implementation to
ensure that the plan works as expected. Feedback is often used to evaluate and set the corrective actions to implement a
defined plan. Based on the feedback, manager or worker can decide to keep the original plan and let it work, or to take
corrective action or to re-plan it. This feedback can be in the form of financial report or performance report.
Decision making
is a process to choose the best solution among many alternatives. This managerial function is collaboration between
planning and controlling. The quality of decision can be improved if all alternatives information can be collected and
presented to manager. One of the important roles of Accounting Information System is to supply the information to
simplify the decision making process.
URL:https://blog.mpmm.com/the-management-process-planning-controlling-and-decision-making/
Website Title: Management Process: Planning, Controlling, Decision Making
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Article Title: The Management Process – Planning, Controlling and Decision Making
