MANAGEMENT ACCOUNTING

Management accounting



Management accounting

Introduction

Management accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions. It is the Process of preparing management accounts that provide accurate and timely key financial and statistical information required by managers to make day-to-day and short-term decisions. Unlike financial accounting (which produces annual reports mainly for external stakeholders such as creditors, investors, and lenders) management accounting generates monthly or weekly reports for the firm's internal audiences such as department managers and the chief executive officer. These reports typically show the amount of available cash, sales revenue generated, amount of orders in hand, state of accounts payable and accounts receivable, outstanding debts, raw material and in-process inventory, and may also include trend charts, variance analysis, and other statistics. Also called managerial accounting (Arussy, 2005).

In contrast to financial accountancy information, management accounting information is:

designed and intended for use by managers within the organization, whereas financial accounting information is designed for use by shareholders and creditors.

usually confidential and used by management, instead of publicly reported;

forward-looking, instead of historical;

computed by reference to the needs of managers, often using management information systems, instead of by reference to financial accounting standards.

This is because of the different emphasis: management accounting information is used within an organization, typically for decision-making.

Role of management accounting in major investment decisions

The capital investment decision combines many aspects of accounting and finance. A number of business factors combine to make business investment perhaps the most important financial management decision. Further, all departments of a firm—production, marketing, logistics, and soon—are vitally affected by the investment decisions; so all executives, no matter what their primary responsibility, must be aware of how capital investment decisions are made and how to interact effectively in the processes. In management accounting, cost accounting establishes budget and actual cost of operations, processes, departments or product and the analysis of variances, profitability or social use of funds. Managers use cost accounting to support decision-making to cut a company's costs and improve profitability. As a form of management accounting, cost accounting need not follow standards because its primary use is for internal managers, rather than outside users, and what to compute is instead decided pragmatically (Kilger, 2002).

Costs are measured in units of nominal currency by convention. Cost accounting can be viewed as translating the Supply Chain into financial values.

Decision making; firm's strategy and its competitive positioning

As a life insurance company, we know that our customers trust their monies with us for the long-term, and hope to use these funds to protect and achieve the dreams and aspirations of their families. With this in mind, our investment focus is to ensure long term Safety, Stability and Profitability of our customers' funds. Our aim is to achieve superior returns for a given level of risk. In order to meet this objective, we have developed an investment framework that is based ...