Management Accounting
Chapter 1:
Management accounting: measures and reports financial information as well as other types of
information that are intended primarily to assist managers in fulfilling the goals of the organization
Financial accounting: focuses on external reporting that is directed by authoritative guidelines
Cost accounting: measures and reports financial and non-financial information related to the
organizations' acquisition or consumption of resources
Differences:
–Regulations: Management accounting reports are generally prepared for internal use and no
external regulations govern their preparation
–Range and detail of information: Management accounting reports may encompass financial,
non-financial and qualitative information which may be very detailed or highly aggregated
–Reporting Interval: Management accounting reports may be produced frequently
–Time period: Management accounting reports may include historical and current
information but also often provide information on expected future performance and
activities
Cost management: used to describe the actions of managers undertake in the short-run and long-
run planning and control of costs that increase value for customers and lower the costs of products
and services, broad focus
Major purposes of accounting systems:
–Formulating overall strategies and long-range plans
–Resource allocation decisions such as product and customer emphasis and pricing
–Cost planning and cost control of operations and activities
–Performance measurement and evaluation of people
–Meeting external regulatory and legal reporting requirements where they exist
Planning: choosing goals, predicting results under various ways of achieving those goals and then
deciding how to attain the desired goals
budget: the quantitative expression of a plan of action and an aid to the coordination and
implementation of the plan
Control: covers both the action that implements the planning decision and deciding on performance
evaluation and the related feedback that will help future decision making
Management by exception: the practice of concentrating on areas not operating as expected (such
as a cost overrun on a project) and placing less attention on areas operating as expected.
Understanding the reasons for any difference between actual results and budgeted results is an
important part of management by exception
Variance: refers to the difference between the actual results and the budgeted amounts
Scorekeeping: refers to the accumulation of data and the reporting of reliable results of all levels of
management
Attention directing: attempts to make visible both opportunities and problems on which managers
need to focus
Problem solving: refers to the comparative analysis undertaken to identify the best alternatives in
relation to the organization's goals
As customers, managers buy a more elaborate management accounting system when its perceived
expected benefits exceed its perceived expected costs and only after due consideration of contextual
