Management Accounting Introduction

Management accounting is a broader field of which cost accounting is a subset. It takes into account the quantitative information related to costs and other available quantitative as well as qualitative information. It is concerned with providing helpful information to internal users such as managers and entrepreneurs etc. for planning and controlling the business activities.

Management accounting or managerial accounting is the process of recording, evaluating, and presenting financial information in an organized way. As the name “Management Accounting” suggests, the financial information is prepared for and presented to the management for internal uses such as decision making, short and long term planning and controlling the activities. It is also focused on the analysis of future projections.

Cost accounting is the process of recording, evaluating, and presenting information related to costs that is used internally by the management for decision making. It is focused on evaluating past and present data and is a useful tool for short term planning.

Core areas of running businesses in which cost and management accounting is used are:

  • Decision making: Managers and entrepreneurs often have to make short term and long term decisions such as whether to undertake a project or not, choosing between two projects, shutting down a product and launching a new one etc. In such situations, cost and management accounting comes to aid the managers, enabling them to make well informed decisions. Managers often use relevant costing techniques to evaluate the available options.
  • Planning: To achieve the goals and objectives, an organization must thoroughly plan its route to achieving those objectives. It is fundamental to the management process as it provides a basis for evaluating and controlling the performance. Planning involves activities such as determining the demand for a product, determining the optimum level of production and resources required, determining the price for a product etc. Managers use cost and management accounting techniques such as forecasting and budgeting for planning activities.
  • Controlling: The control function is of prime importance in achieving the goals and objectives. Management needs to monitor its business activities to evaluate whether planned targets are being achieved or not. It identifies the areas for improvement and helps to take corrective actions on timely basis. Mangers use cost and management accounting techniques such as standard costing and variance analysis to evaluate the performance.