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1.2 Definition of management accounting
Management accounting is the process of identifying Measuring, accumulating, analyzing, preparing, interpreting, and communicating information that helps manager fulfill organizational objectives.
Management accounting or managerial accounting is to concerned with provisions and use of accounting information to manager within the organization, to be provide with the basis to make informed business decision that will to allow them to better equipped in their management and control function.
1.2.1 What is management accounting?
The management accounting is comprised of two words 1st management and 2nd is accounting. The management accounting is the study of managerial aspect of accounting. They will be the emphases to redesign accounting in such way it is the help of management in formation of policy, control and decision to apperception of effectiveness
Management Accounting which is provides the information for environment management to facilitated decision making. Good management accounting information is three kinds. 1st is technical, 2nd is behavior and 3rd is cultural. Development of management accounting is response to demand and supply management. Management measured develop by the organization
Management accounting is refer the processes and techniques that point out on the efficient use of organizational resources to support managers inn their task of enhancing both customer value and share holder value
1.3 Management accounting systems
Management accounting system is an informational system that produces the information necessary by managers to manage resources and create value. It is formed the part of an organization wider management information systems. Management accounting information can be provided on a regular basis and can include estimate of the cost of producing goods and services information for planning and controlling operations, and information for measuring performance organization. Management accounting system can also be provide information on an ad hoc basis to satisfy the short term and long term decision making needs of management. Management is not to be providing all the information system to satisfy manager's decision making needs for sometimes information also needs to be obtained from other sources include those out side the organization.
1.4 Management accounting information
Focus of the management accounting is on the needs of the managers within the organization. Because accounting standard apply only the external financial report there is a great flexibility in deciding the type of information that should be generated for manager.
1.5 Origin and scope
The term management accounting is a current origin. This term was used in first time in 1950 by a team accountants visiting USA under the auspices of Anglo-American Council of Productivity. These terms of cost accountancy had no reference to the word management accountant before the report of this study group. Management accounting is use for planning, co-ordination and controlling functions of management.
A small undertaking with a local character is generally managed by the owner himself. The owner is in touch with day-to-day working of the enterprise and he plans and coordinates the activities himself. The simple accounting is enables to preparation the profit & loss account in balance sheet for determining purposes are meeting by simple financial statements. Since the owner is both the decision-maker and implementer of such decisions, he does not feel the necessity of any communication system and no additional information is required for managerial purposes. The evolution of joint stock company from of organization has resulted in large-scale production and separation of ownership and management.
The introduction of professionalism in management has brought in the division of organization into functional areas and delegation of authority and decentralization of decision-making. The decision-making no more remains a matter of intuition. It requires the evolution of information system from helping management in planning and assessing the results. The accounting information is required as a guide for future. The management is to be fed with precise and relevant information so as to enable it in performing managerial functions efficiently and effectively.
The principal objective of any business or trade is to earn profit. The achievement of this objective is becoming difficult mainly due to globalization, cut-throat competition, specialization, rapid technological advancement, e-commerce and increasing social accountability. It has, therefore, become a compelling factor for the management of every business enterprise to keep in touch with the latest information related to its internal and external environment. This information is provided by management accounting.
1.6 Need for management accounting
Management accounting is to provide the use of accounting information in the organization of manage. The manager is to provide the essential information of organization and make to inform the business decision .the manager of the organization is not to publicity the report on accounting information. It is used information by the management only that information are about the future and is not about historical data Management accounting is a very important role in the organization, business, industry, and other system
Business activity planning
Decision making help
Helps with the preparation of financial reports
The management accounting is a used for the organization sector. They will be a needed for the organization. The accountant uses the strategic decision in the management accounting mater. Management accounting is the key of the organization. They will be a perfect decision making in the role of use in sector. Pakistan is too provided by the accounting study in the country. ICMAP is a first institute to be stared the study of accounting.
1.7 Definition of financial accounting
Financial accounting is the field of accounting concerned with the preparation of the financial statement for decision making, such as stock holder, banks, employees, government agencies, owner and stock holder
Financial accounting is the field of accounting that develops information for external decision makers such as stock holder, supplier, government agencies, owners; Accounting is that aim s to present a business financial state to outside parties such as shareholder, applying generally accepted accounting principles.
Field of the accounting treat to measure the economic performance as a in its place of (in cost accounting) as factor of production. It encompasses the total system of monitoring and control of the money as it flows in out of the firm as assets and liabilities, and revenues and expenses. Financial accounting collect and summarize financial data to prepare financial reports such as balance sheet and income statement for the firm of management, investor, suppliers, tax authorities and other stakeholder.
1.8 Deference between Financial Accounting & Management Accounting
The financial statements are issue to stockholders, lenders, financial political analyst and others outside. Company route in financial accounting face by the generally establish accounting principles. This must be following when reporting the results a corporation's past transactions on its balance sheet, income statement, statement of cash flows, and statement of changes in stockholders' equity.
1.8.2 Management accounting
The management is to providing information within the company so that management can be operating the more successful company.Â Managerial accounting and cost accounting also provide information on compute the cost of product manufacturing enterprise. The cost will be used in the external financial statements. In adding the cost systems for manufacturers, course in managerial accounting will be include topics such as a cost behavior, break-even point, profit planning, operational budgeting, capital budgeting, relevant costs for decision making, activity based costing, and standard costing.
DIFFERENCE NO 1:
Steward ship of business for profit of shareholders
request to get better economy, efficiency and effectiveness of operation
As we know Financial accounting mostly focus on the periodic reporting information, are required by act for shareholders, government agency and other parties external to the business.
DIFFERENCE NO 2:
Not only look at the Past, but the Present and the Future which affects the operation of company.
Financial accounting is predominate based upon the past transactions and procedures. One of the major conventions is statement of the historical cost.
DIFFERENCE NO 3 AND 4
External/outsiders namely the shareholders and government (tax)
Internal parties like directors and company managers
Profit and loss account, balance sheet &cash flow statement
Detailed monthly and annual management accounts performance results by product and function unplanned report
DIFFERENCE NO 5:
Accounting concepts is plus statutory requirements for the Companies Acts
None set the guidance and formats of the CIMA terms tend to be follow in the organizations
Financial statements prepared by the Financial Accountants will embrace many monotonous accounting concepts/convention stipulated by the Accounting Standards and local Companies Acts.
Management accounting system which are produce information which is used within the organization, managers and employees
Information which are used by external parties to the organization, such as shareholders, bank and creditors.
Management accounts which help management to record, plan and control activities and aid to the decision making process.
Financial accounting provides a record of the performance of an organization over a defined period and the state of affairs at the end of that period.
Management accounting can focus on specific areas of an organization's activities. Information may aid a decision making rather than be an end product of a decision.
Financial accounting concentrates on the organization as a whole, aggregating revenues and costs from different operation.
Organization management at various levels
Outside parties such as investors and government agencies but also organization managers
Freedom of choice
No constrain than cost in relation to benefits of improved management decision
Constrained by generally accepted accounting principal (GAAP)
Concern about how measurement and reports will influence managers daily behavior
Constrain about how to measure and communicate economic phenomena. Behavioral consideration are secondary, although executive compensation based on reported result may have behavioral impacts
Future orientation: formal use of budgets as well as historical records
Past orientation: historical evaluation
Flexible varying from hourly to 10to 15 years.
Less flexible: usually 1 year or 1 quarter
Detail report: concern about detail of part the entity products
Summary report: concern primarily with entity as a whole
1.9 Accounting system
An accounting system is a formal mechanism for gathering organizing and communicating information about the organization activities. Accounting system is use for both financial accounting and management accounting purpose some time creates problems.
Accounting system is set to organized manual and computerized method procedures and control established together recording classifying and analyzing the financial data for management decision
The accounting system is to record and proceeds for internal and external industries organization, they relay to the collecting, recording and reporting of information related to financial operations, and that also provide necessary internal controls.
Accounting system is a vital role of the organization. Companies are used to accounting system in the business. Accounting system is a most accurate system in the organization. Pakistan is mostly used the accounting system in the organization. ICMAP is a the largest Pakistan institute they will be provide the accounting techniques management adopt by the accounting system is internal information and control .accounting system is control the internal and external recording the transaction. That they would be providing the correct transaction would be found it.
An accounting system is a formal method for assembly, organizing, and communicating information about an organization's activities.
Usually established accounting principles (GAAP) include broad procedure and detailed rules and actions that make up established accounting practices at a certain time
Income tax authorities and regularities body such as the Securities and Exchange Commission and the California health facility commission of limited management choice of accounting method for the external report. Many organizations develop system premolar to satisfied legal requirement imposed by external parties.
1.10 Management by exception
Management by exception is the "policy by which management devotement is time to investigation these situation in which accurate results different significant from planned results. The main idea is that management should be spending its important time focused on the more important items (such as seminal the company's future strategic course). Altercation is given by the material deviation required investigation."
The type of management exception can be physically powerful when it is need to be process loss of data order to take managerial decision. The difficulty with this policy is that can result in my topic performance. This performance imply that low management shift goal to achieve from running a successful business in a world environment, management to search regional auditor and manager with to find out financial data which will be interaction the organization. In the situation, a company manager might be sell of an assets like equipment in order to scheme accounting ratios used in determining exception. Thus, lower management can in some cases avoid being marked exception; the long term benefit of the plant they are manages by the exception.