What Is Management Accounting?

What is Management Accounting

In today's world no business can operate without a proper system of control. Businesses consist of various systems that when put together and harnessed efficiently can make the smallest business to the largest corporation run like a well oiled machine. Certainly, one of the most important systems is accounting. Accounting is the process of collecting and reporting in an appropriate manner the financial stance of an organisation to the parties of interest. The process of accounting, which today is by many regarded as an art has been around for more than 10,000 years. The formal guidelines of accounting were first laid down by a Franciscan friar by the name of Luca Pacioli in 1494, he is regarded as the father of accounting. He published 2 of the more important works called "Summa de Arithmetica" and "Geometria, Proportioni et Proportionalita", these translate to "Everything About Arithmetic" and "Geometry and Proportion". Accounting is first and foremost based on a double-entry method. This requires a debit and credit entry for each transaction. Accounting came into its own with the industrial revolution, during this period it transformed from mere record keeping to necessity. The effectiveness of accounting can be illustrates by the example of Josiah Wedgwood, (the father of Charles Darwin) who kept his pottery factory above water during the depression of 1772 even though the product is not considered as one of the four basic needs of man. The core of accounting has remained unchanged although huge advances have realized. The profession is governed by the board and manual referred to as GAAP an abbreviation for "Generally Accepted Accounting Practices", the Financial Accounting Services Board oversees its members - the accountants.

Accounting's main purpose is to compile and present financial information in an easier and shortened manner, a summary. It allows investors and creditors to asses timing and uncertainty of cash flows, it reflects information on a company's economic resources and the claims thereof, it provides information on operating performance, how a firm obtains and uses money and financial resources and supplies information on a company's public responsibility and whether management has adhered to those responsibilities.

There are three main types of financial accounting statements namely. Balance sheet, income statement and cash flow statement. Some of these names have recently been changed and are now known as statement of financial condition, income statement and statement of cash flow respectively.

Accounting has branched out into various sub-sections to cater for ever changing specialised needs namely. Financial accounting, Management accounting, cost Accounting ext.

Cost accounting, also known as management or managerial accounting is focused on capturing and calculating an organisation's cost of production and forms part of the organisation's information system. It refers to the internal cost tracking and expenditure.

This is accomplished by breaking down the cost of inputs at each stage in the production process as well as fixed costs, examples of fixed costs are depreciation of property and plant, amortisation of non tangible assets, utility expenses ext. These costs are recorded individually and compared to in- and output results to help management understand and measure the organisation financial position. Measurement of cost accounting is done by the predominant financial drivers in everyday operations, this carries through to every activity in the organisation.

The four main objectives of cost accounting are:

 To provide managers with accurate information to allow for planning and decision making

 Help in controlling operations

 Assist management and staff in achieving the organisation's goals

 Performance measurement of both product and staff

Management accounting has developed from the basic cost accounting basis to what it is today because of the demand from managers for more information and better planning procedures on the sales and purchasing process as well as more thorough asset registers and employee records.

Financial accounting on the other hand is used to gather information for the development of the financial statements at the end of each year. This includes balance sheets, income statements and statements of cash flow.

These statements communicates financial information of the company and the companies well being to external parties who are involved with the company or people who would like to own or already own shares in the company under question as well as the owners or the board of directors of the company by comparing, amongst other things, a company's