Management accounting

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Management accounting is those areas of accounting concerned with financial planning, principally through the interpretation and use of financial data for important management of the business. The role of accounting is to provide relevant information, which will assist management with decision-making, planning economic performance, controlling costs and improving profitability. However, note that the information generated by the management accounting function is just one component part of the decision-making process. It is not the 'be all and end all'; it must be used in conjunction with other data. The purpose of this essay is outline the objectives of and the main stages in, a managerial planning, decision making and control process and describe the role served by managerial accounting in this process.

The aim of management accounting is to provide management with information, which will help them to:

* Achieve their objectives/goals.

* Formulate policy.

* Monitor and assess performance.

* Appreciate the financial implications of changes in the internal and external environment in which the organization operates.

* Plan for the future.

* Make comparisons between alternative scenarios.

* Manage more efficiently the scarce resources, which are at their disposal.

* Control the day-to-day operations.

* Focus their attention on specific issues, which really need their consideration.

* Solve a variety of problems, e.g. investment decisions.

* Take account of behavioural factors.

Understanding the nature of measurement and communication, the characteristics of economics information, the theories and practices of the decision making process and the identification of accounting information users are crucial to the understanding of accounting in general.

The major users in accounting information can be divided into three groups:

. Internal managers who use the information for short run planning and controlling everyday operation.

2. Internal managers who use the information for making non-routine decisions and formulating overall policies and long run plans.

3. External parties, such as investor and shareholders, who use the information for making decisions about the company in general.

An accounting system is a formal mechanism for collecting, arranging and communicating information about an organization's activities. This will only be develops if the benefits from its use, in term of improved decisions, are expected to exceed the costs of establishing and operating it.
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Differing from financial accounting, the focus of management accounting is usually on the information at a more details level, on results for any products and on costs for particular productive operations. Understanding the role of management accounting requires an appreciation of what is involved in management and the kinds of decision that management is faced with.

Information is important in management decision making. The objective of the management accounting system is to provide the best information for assessments of the amounts, timing and uncertainty of cash flows to the business from each alternative course of action available ...

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