MANAGEMENT ACCOUNTING

Evolution of Management Accounting Discipline and Its Relationship with Other Functions in Organizations

Evolution of Management Accounting Discipline and Its Relationship with Other Functions in Organizations

Introduction

The study is related to the evolution of the management accounting and relationship of management accounting with other functions of the organizations. In this context, management accounting is the process of identification, preparation, analysis, measurement, accumulation, correct interpretation and communication of information and knowledge used by management to plan, control and evaluate within an entity and to assure appropriate use of and accountability for its valuable resources. Management accounting includes the preparation of financial reports for non-management use as well such as financial reporting for creditors, share holders, tax authorities and regulatory agencies. The significance of management accounting in any organization is of vital importance as it define the financial position of the company and on the basis of this information the company make its strategic decisions. The wrong interpretation or representation of management accounting in financial reporting can lead the organization towards deterioration.

Evolution of Management Accounting

The study of historical aspects of management accounting can be divided into nucleation, formation, development and integration. The evolution of management accounting comprises the period from the beginning of XIX century until the beginning of XX century. Until 1800, the company was mainly focused on small and family businesses. In these circumstances, there was little need for management accounting. Management decisions are taken directly to business owners.

During the period of 1825-1925, the increase in the number of large enterprises, this resulted in an increase, in the need for new methods of accounting and management. It was during this period having been developed, most modern methods of management accounting. In particular, the textile mills in the early XX century, managers are advised of the cost of the processing time of raw materials, unit cost and cost per worker. Managerial accounting information is used to monitor and improve the efficiency, also decisions on pricing and assortment (Aguilar, 2003, 44-49). In addition to this, information on the productivity enabled to make decisions about additional remuneration of workers and improving technology.

Information on costs helped the managers to decide whether to purchase new equipment, fixing prices for the current sales and special orders, determining the level of wages, etc. In turn, enterprises of railway transport in 1850-1870 developed a system's cost, which provided the cost per 1 ton of cargo traffic to different geographical segments, as well as the ratio of operating expenses and income of the enterprise. At the beginning of XX century on the steel companies, which owned and operated by Andrew Carnegie, was introduced cost control based on daily reporting on the cost of materials, energy and labor per unit of output (Baker, 1979, 224-225). This information was used to assess the performance of managers, supervisors and workers, quality control and formulation of materials for making ongoing management decisions.

Relationship of Management Accounting with Other Functions of Organization

Management accounting, which is also, commonly known as managerial accounting deals with the provision and use ...