TOPIC 1

Definition of
Management
Accounting
Management Accounting is
concerned with the provision
of information to people
within the organization to
help them make better
decisions and improve the
efficiency and effectiveness
of existing operations.
Roles of Planning Controlling Making
Managemen
t Accountant Planning – helps
managers to formulate
Controlling – help
control process by
Decision making – helps
managers to make
future plan by providing providing performance short- and long-term
relevant information. reports. strategic decisions.
 Users of Management Accounting
Information
• Managers – require information that will
assist them in their decision making
and control activities
• Shareholders – to value their
investment and income that is derived
from their shareholding
• Employees – to identify the ability of
the firm to meet wage demands and
avoid redundancies
• Creditors/Banks – to confirm the
firm’s ability to meet its financial
obligations
• Taxation authority – to determine
the amount of profits that is
subject to taxation
 Cost - is concerned with the ascertainment of cost of
Comparison
between Cost accounting manufacturing a product or giving a service, and
Accounting and the way in which costs can be controlled.
Management
Accounting

Management - is concerned with the provision of information to

accounting assist management in the formulation of policies
and in the planning and control of operations of
the business.
 Differences between Management
Accounting and Financial
Accounting
FINANCIAL ACCOUTING
Main users External users outside the
organization such as
shareholders, creditors, banks,
customers and tax authority
Time dimension Reports on past events
(use historical data)
Scope Reports on entire organization
Frequency of reports Reports are published annual or Reports are prepared daily,
half yearly
MANAGEMENT ACCOUTING
Internal users within the
organization such as managers
and employees
Reports on past, current and
future events to assist in
planning, decision making, and
controlling
Focuses on small segments of
the company such as products
and departments
weekly, monthly or quarterly
depending on needs
 Similarities between Management
Accounting and Financial
Decision making
Accounting
Involves in selecting the best course of action from a given set of
alternatives.

Recording Concern with classifying, quantifying and gathering of information

relating to business transactions.

Performance Measures performance and find any difference between actual and
evaluations planned performance for further improvements.
Types of Information

• Financial Information (Quantitative) -

Expressed in numerical and monetary terms
such a s market share, investment costs
and actual sales volume.

• Non -Financial Information (Qualitative) -

Cannot be expressed in numerical terms
and is usually subjective in nature;
sometimes opinions and ideas; such a s
employee morale and loyalty, customer
satisfaction, product quality, political
effects and competitors’ reaction.
 Characteristics of
good information
• Relevant - Information may influence the
decision that is about to be made.
• Reliable - Information originated from trusted
parties and must be obtained from reliable
sources. It is prepared objectively and free from
any bias.
• A ccuracy - Information mus t be s ufficiently
correct and free from any error and
misstatement. Inaccurate information will lead
to wrong judgement and wrong decision made.
• Timelines s - Information s hould be current as
pos s ible, not out-of-date and available when
needed.
• U nders tandability - The information mus t be
understandable to the managers or users. It
should be presented in a way that can be easily
understood by intended users; e.g. in a form of
a presentable summary, supported by graphs,
tables, diagram, charts.
• Cost effective - Information can be useful if it
required less cost to obtain.
The Impact of
Information Technology
on business
• Consumers are becoming more selective
when purchasing products or services
because they can derive more information
from the internet and compare the different
products available.

• Businesses now have new marketing and

sales channel which can help in generating
extra revenue. Business with an advantage in
IT can have a competitive edge over its
competitors. In fact, these new channels are
also more cost effective.

• E-commerce has provided the potential to

develop new ways of doing business. The use
of online facilities reduces cost and generates
extra revenues a s people find it more
convenient to transact online (example;
ticketless airline bookings and internet
banking).
 • Competitors
• Government policies - regulations,
Factors that import/export tariffs, corporate taxes,
influence changes • E conomy - The s tate of the economy and
our environment has a major influence on
in competitive consumer buying power. If the economy is
environment experiencing a recession, consumers may
not be able to buy what they normally buy
due to lack of employment.
• Social and cultural forces - lifestyles,
friendship etc many of this trends goes a
long way to affect marketing operations.
• Demographic - study of people, such a s
their age, sex, marital status, occupation,
family size etc.
• Technological changes – from typewriting
machines into a more proficient computer
systems. Company cannot stop the
advancement of technology, but they can
learn to adapt to its changes.