Author: Benny

Management accounting is the provisions and use of the information found in the accounts by managers of an organization. Based on this information, managers make crucial decisions and have a control over the business activities for the welfare of the business organization. Unlike financial accounts, managerial accounts focus more on the future rather than pondering over the past happenings. It is model based structure which would assist decision making. Unlike financial accounts which are used by stock holders, management accounts are used by managers. While financial accounts are publicly reported, management accounts are confidential. It is a process of identification, measurement, analysis and interpretation of information which is used for a management plan.

Components of Management Accounts

Preparation of financial accounts for non management groups like shareholders, creditors and tax authorities for instance are included in management accounting. Such accounting comprises of strategic management, performance management and risk management. A management accountant uses his skills to prepare financial and decision oriented information which helps a lot while formulating policies. Therefore it is considered to be a value creating discipline. Management accountants focus more on the future of an organization.

Traditional and innovative methods

Management accounting practices may be traditional or innovative. Such traditional and innovative techniques vary from one another by their cost control approaches. Cost control is the main focus of management accounts. In traditional methods, variance analysis is used to compare actual and budgeted costs. In innovative techniques, lifecycle cost analysis and activity based costing are used to make such comparisons. A managerial accountant could control the cost of manufacture through lifestyle costing and could make changes in the product with activity based costing. Lifecycle costing and activity based costing also help to avoid situations of machine breakdowns and reduces cost of raw materials.

Types of Management Accounting

Management accountants do dual reporting which includes interaction with the business team and with the financial division of a corporate. In corporations like banks, publishing houses and telecommunication companies IT costs poses as a big expense. The management accountant works with the IT department to obtain IT cost transparency. Lean accounting suits companies with mass production and does not recommend any business practices at production stages. Resource consumption accounting is a dynamic, principal based approach which provides decision support information. Throughput accounting involves interdependencies of modern production systems. This discipline of accounts is a very important part of Chartered Accountant courses.

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