Management Accounting - Research Paper Example

Download file to see previous pages Management accounting is not a specific system of accounts, but could be any form of accounting which enables a business to be conducted more effectively and efficiently. Management accounting in the words of Robert S. Kaplan, is a system that collects, classifies, summaries, analyses and reports information that will assist managers in their decision making and control activities.
Accounting may be defined as “the art of recording, classifying, and summarizing ... transactions and events and interpreting the results thereof”. Two types of accounting are usually taking place in organizations; financial accounting and management accounting. Financial accounting and managerial accounting are entirely different things even though some people perceive both as same thing. Financial accounting is a reporting method to stakeholders outside the organization whereas management accounting is a reporting method intended for the stakeholders inside the organization. In other words, management accounting helps managers inside the organization to take sound decisions. Management accounting is a multifaceted entity and therefore it undergoes various processes like data collection, analysis, interpretations, implementations of decisions etc. Management accounting can be considered as an extension to cost accounting since it uses many of the data used for cost accounting. “From a management accounting point of view the primary purpose of management is to make decisions that may be classified as marketing, production, and financial” (Management Accounting and Decision-Making, n.d, p.24). Unlike cost accounting, management accounting is usually done through unregulated channels since it is intended for the internal use alone. Various sources of data such as accounting system, production and sales department, business process etc can affect management accounting. Sources of data for management accounting and how these data are used to make management decisions Accounts department, Production department, sales department and the business process are the major data sources for management accounting. Accounts department is the most important source of data for management accounting. In fact the top managers taking critical decisions about the future business strategies of an organization based on the feedbacks they receive from the accounts department. Accounts department is the only entity in an organization which knows the current financial strength of an organization. They are the ones who hand the debts and credits of the organization. Moreover, they are the ones which estimate the profits and losses of an organization during a particular period. Accounts department also identifies the underperforming areas of the organization. All these information will help the top managers in taking sound decisions and guiding the organization towards prosperity. Only the production department knows the volume of raw materials, labor and time required for the completion of a particular job and therefore the accounts department should consult with production department before making any estimation about the probable cost an organization may spend for the completion of a particular work. Some jobs may appear simple in its nature; however, the complications involved in the actual production of such jobs are better known only to the production people. On the other hand, some other jobs would be easier for the production department even if it appears to be complicated. Since the accounts departments may not have the technical know-hows about the various mechanisms or methods used in the production of a particular product, costing of a job without consultation with the production department will always generate problems to the organization. The accounts department may quote more or less price for a particular job if they fail to seek the advices of the production de ...Download file to see next pagesRead More