Management accounting
Chapter 1
Management accounting is the branch of accounting that produces information for
managers within an organization. It is the process of identifying, measuring,
accumulating, analyzing, preparing, interpreting and communicating information that
helps managers fulfill organizational objectives. Financial accounting produces
information for external parties such as stockholders, suppliers, banks and
government regulatory agencies.
Internal managers use accounting information for making short-term planning and
control decisions, for making nonroutine decisions and for formulating overall policies
and long-range plans. External users, use published financial statements to make
investment decisions and more. Managers use accounting information to answer
scorekeeping, attention directing and problem-solving questions. For decision
making accounting information helps answer the problem- solving questions. For
performance evaluation and control, accounting helps answer scorecard and
attention-direction questions:
1. Scorekeeping is the accumulation, classification and reporting of data that
help users understand and evaluate organizational performance.
2. Attention directing involves reporting and interpreting information that helps
managers to focus on operating problems, imperfections, inefficiencies and
opportunities.
3. Problem solving aspect involves analysis of alternative courses of action and
identification of the best course to follow.
A budget is a quantitative expression of a plan of action and an aid to coordinating
and implementing plans and result from the planning process. Managers use them to
translate goals into action. Performance reports provide feedback by comparing
results with plans by highlighting variances, which are deviations from plans. It
compares the actual results to the budget.
Managers should keep two important ideas in mind when designing accounting
systems: the cost benefit balance and behavioral implications. The cost benefit
balance, weighing estimated costs against probable benefits, is the primary
consideration in choosing among accounting systems. Accounting systems are
economic goods, like office supplies and labor. Managers should also consider
behavioral implication, that is the system’s effect on employees’ decisions and
behavior.
The product life cycle refers to the various stages through which a product passes:
conception and development; introduction into the market; maturation of the market
and withdrawal from the market.
Value chain
Accountants play a role in supporting all the value chain functions.
, Accounting’s position in the organization
The following work activities are from management accountants:
- Collecting and compiling information
- Preparing standardized reports
- Interpreting and analyzing information
- Being involved in decision making
As an organization grows, it must divide responsibilities among a number of
managers and executives with specific responsibilities. Line managers are directly
involved with making and selling the organization’s products or services. Staff
managers are advisory, they have no authority over the line managers but support
them by providing information.
A treasurer and controller report to the chief financial officer (CFO). The treasurer is
concerned with the company’s financial matters while the controller is concerned
with operating matters.
Adaption to change
There are four major business trends that are influencing management accounting
today:
- Shift from a manufacturing based to a service-based economy: Service
organizations are organizations that do not make tangible goods but provide
other forms of value. Common characteristics of service organizations:
o Labor is a major component of cost
o Output is difficult to measure
o Service organizations cannot store their major inputs and outputs
- Global competition
- Advances in technology
- Changes in business process management: companies implement changes in
operation through business process reengineering. Companies reduce
process time by redesigning, simplifying and automating the production
process.
Just-in-time philosophy eliminates waste by reducing the time products
spend in the production process and the time products spend on activities that
do not add value. Lean manufacturing is applying continuous process
improvements to eliminate waste from the entire enterprise. Total quality
management focusses on the prevention of defects and on customer
satisfaction.
Ethical conduct
Users of accounting information expect accountants to adhere high standards of
ethical conduct. Most users cannot directly asses the quality of that information, and
if they cannot rely on accountants to produce unbiased information, the information
will have little value. That is why accounting organizations have codes of ethical
conduct. Many ethical dilemmas require more than codes and conducts, they call for
value judgements.
Chapter 1
Management accounting is the branch of accounting that produces information for
managers within an organization. It is the process of identifying, measuring,
accumulating, analyzing, preparing, interpreting and communicating information that
helps managers fulfill organizational objectives. Financial accounting produces
information for external parties such as stockholders, suppliers, banks and
government regulatory agencies.
Internal managers use accounting information for making short-term planning and
control decisions, for making nonroutine decisions and for formulating overall policies
and long-range plans. External users, use published financial statements to make
investment decisions and more. Managers use accounting information to answer
scorekeeping, attention directing and problem-solving questions. For decision
making accounting information helps answer the problem- solving questions. For
performance evaluation and control, accounting helps answer scorecard and
attention-direction questions:
1. Scorekeeping is the accumulation, classification and reporting of data that
help users understand and evaluate organizational performance.
2. Attention directing involves reporting and interpreting information that helps
managers to focus on operating problems, imperfections, inefficiencies and
opportunities.
3. Problem solving aspect involves analysis of alternative courses of action and
identification of the best course to follow.
A budget is a quantitative expression of a plan of action and an aid to coordinating
and implementing plans and result from the planning process. Managers use them to
translate goals into action. Performance reports provide feedback by comparing
results with plans by highlighting variances, which are deviations from plans. It
compares the actual results to the budget.
Managers should keep two important ideas in mind when designing accounting
systems: the cost benefit balance and behavioral implications. The cost benefit
balance, weighing estimated costs against probable benefits, is the primary
consideration in choosing among accounting systems. Accounting systems are
economic goods, like office supplies and labor. Managers should also consider
behavioral implication, that is the system’s effect on employees’ decisions and
behavior.
The product life cycle refers to the various stages through which a product passes:
conception and development; introduction into the market; maturation of the market
and withdrawal from the market.
Value chain
Accountants play a role in supporting all the value chain functions.
, Accounting’s position in the organization
The following work activities are from management accountants:
- Collecting and compiling information
- Preparing standardized reports
- Interpreting and analyzing information
- Being involved in decision making
As an organization grows, it must divide responsibilities among a number of
managers and executives with specific responsibilities. Line managers are directly
involved with making and selling the organization’s products or services. Staff
managers are advisory, they have no authority over the line managers but support
them by providing information.
A treasurer and controller report to the chief financial officer (CFO). The treasurer is
concerned with the company’s financial matters while the controller is concerned
with operating matters.
Adaption to change
There are four major business trends that are influencing management accounting
today:
- Shift from a manufacturing based to a service-based economy: Service
organizations are organizations that do not make tangible goods but provide
other forms of value. Common characteristics of service organizations:
o Labor is a major component of cost
o Output is difficult to measure
o Service organizations cannot store their major inputs and outputs
- Global competition
- Advances in technology
- Changes in business process management: companies implement changes in
operation through business process reengineering. Companies reduce
process time by redesigning, simplifying and automating the production
process.
Just-in-time philosophy eliminates waste by reducing the time products
spend in the production process and the time products spend on activities that
do not add value. Lean manufacturing is applying continuous process
improvements to eliminate waste from the entire enterprise. Total quality
management focusses on the prevention of defects and on customer
satisfaction.
Ethical conduct
Users of accounting information expect accountants to adhere high standards of
ethical conduct. Most users cannot directly asses the quality of that information, and
if they cannot rely on accountants to produce unbiased information, the information
will have little value. That is why accounting organizations have codes of ethical
conduct. Many ethical dilemmas require more than codes and conducts, they call for
value judgements.
