MANAGEMENT ACCOUNT (Theory)
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NATURE AND PURPOSE OF
MANAGEMENT ACCOUNT
Management Accounting is the application of
professional knowledge and skill in the preparation and presentation of
accounting information in such a way as to assist management in the formulation
of policies in planning and control of the undertaking.
Management accounting is concerned with
identifying, presenting and interpreting information used for planning and control
of an enterprise operation.
Management accounting involves data gathering, analyzing,
processing, interpreting and communicating the reporting information for
effective planning decision marking and operations.
Management accounting uses data from the financial
and cost accounting systems and Statistics.
Management accounting also uses statistics and operations research for
analysis.
Management accounting produces information: which
is relevant for the intended purpose. Management
accounting is concerned with helping management to run a business efficiently.
Purpose of Management
Accounting
The main Purpose of management accounting is the
provision of information used for:
a. Formulating
strategy
b. Planning
and controlling activities
c. Decision
making
d. Optimization
use of resources
e. Disclosure
to shareholders and employees
f.
Safeguarding the assets
Management accounting compared with financial
accounting and cost account. Financial
accounting is concerned with stewardship function. The emphasis is on financial record-keeping
and preparation of financial accounts whereas management accounting provides
information that is useful to the manager of an organization in taking
decisions within the scope of their managerial responsibility. Therefore, the main difference between management
accounting and financial accounting lies in their purpose; financial accounting
is for stewardship purpose while management accounting is essentially for
internal purpose. Management accounting
and cost accounting are closely related.
There is no realistic guideline between cost
accounting, management accounting with regard to the provisions of information
for planning and control. Cost
accounting is concerned with the provision of information about costs while management
accounting uses this information to plan, control or provide problem-solving
analyzes. Therefore cost accounting is
the essential foundation for the development of management accounting system.
In general, management accounting is wider in scope
and uses more advanced techniques than cost accounting. A fundamental requirement for management accounting
is the existence of a sound costing system to provide basic data.
Management accounting is activity base and is
concerned mainly with the present, the future and sometimes the past. Cost and management accounting provide an
internal information system to assist the planning and control decisions by
managers.
Financial, cost and management accounting from past
of the financial information system of an organization and in many enterprises,
the various facets are totally integrated with no artificial divisions between
them.
MANAGEMENT ACCOUNTING AS A TOOL
OF MANAGEMENT
Managers must be properly informed in order to
carry out their responsibility for planning and controlling the resources of a
business. Thus management accounting as
a tool of management is management information system which analyzes past,
present and future data to fit the variety of different problems confronting
managers.
Management accounting ensures that there is effective:
a.
Formulation of plans to meet objectives
b.
Formulation of short term operational plans
c.
Acquisition and the finance
d.
Communication of financial and operating information
e.
Corrective action to bring plans and results
into line
f.
Reviewing and reporting on systems and operations.
Evolution of
Management Accounting
Management accounting evolved out of industrial
revolution and the challenges of modern business to meet the dynamic nature of
environmental and industrial conditions. Management accounting starts from where cost
accounting stopped.
DIFFERENCES BETWEEN MANAGEMENT
ACCOUNTING AND FINANCIAL ACCOUNTING
a.
Financial Accounting is regulated by law while management
accounting is not e.g. CAMA 1990
b. Financial
Accounting is for external and internal use while management Accounting is for management
internal use.
c. Management
Accounting is future oriented while financial accounting is past oriented
d. Management
accounting reports are generated when the need arises while financial
accounting reports is prepared periodically e.g. yearly.
e. Financial
accounting report follow a prescribed format while that of management accounting
do not
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