Management accounting is a field of accounting that analyzes and provides cost information to the internal management for the purposes of planning, controlling and decision making.
Management accounting refers to accounting information developed for managers within an organization. CIMA [Chartered Institute of Management Accountants] defines Management accounting as “Management Accounting is the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of information that used by management to plan, evaluate, and control within an entity and to assure appropriate use of an accountability for its resources”. This is the phase of accounting concerned with providing information to managers for use in planning and controlling operations and in decision making.
Managerial accounting is concerned with providing information to managers i.e. people inside an organization who direct and control its operations. In contrast, financial accounting is concerned with providing information to stockholders, creditors, and others who are outside an organization. Managerial accounting provides the essential data with which organizations are actually run. Financial accounting provides the scorecard by which a company’s past performance is judged.
Because it is manager oriented, any study of managerial accounting must be preceded by some understanding of what managers do, the information managers need, and the general business environment.
Comparison chart
Financial Accounting versus Management Accounting comparison chartThe main objectives of financial accounting are to disclose the end results of the business, and the financial condition of the business on a particular date. | The main objective of managerial accounting is to help management by providing information that is used to plan, set goals and evaluate these goals. |
Financial accounting produces information that is used by external parties, such as shareholders and lenders. | Managerial accounting produces information that is used within an organization, by managers and employees. |
It is legally required to prepare financial accounting reports and share them with investors. | Managerial accounting reports are not legally required. |
Pertains to the entire organization. Certain figures may be broken out for materially significant business units. | Pertains to individual departments in addition to the entire organization. |
Financial accounting focuses on history; reports on the prior quarter or year. | Managerial accounting focuses on the present and forecasts for the future. |
Financial accounts are reported in a specific format, so that different organizations can be easily compared. | Format is informal and is on a per department/company basis as needed. |
Rules in financial accounting are prescribed by standards such as GAAP or IFRS. There are legal requirements for companies to follow financial accounting standards. | Managerial accounting reports are only used internally within the organization; so they are not subject to the legal requirements that financial accounts are. |
Defined - annually, semi-annually, quarterly, yearly. | As needed - daily, weekly, monthly. |
Monetary, verifiable information. | Monetary and company goal driven information. |
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Chapter 01 Test Bank – Static KEY
1. What type of accounting system is part of an organisation's management information system for internal use only?
A. Financial accounting
B. Management accounting
C.
Governmental accounting
D.
All of the given answers
AACSB:
Reflective
Difficulty:
Easy
Learning Objective: 1.03 Describe the major differences between management accounting and financial accounting information
Topic: Role of Management Accountant in Value Creation
2.
Which of the following statement/s about management accounting is/are true?
i.
It is a part of an organisation's management information system.
ii.
It is relied on by managers to plan and control an organisation's operations.
iii.
It is relied on by external users to make investment decisions.
A. i and ii
B.
i, ii and iii
C.
iii
D.
ii
AACSB:
Reflective
Difficulty:
Easy
Learning Objective: 1.02 Define management accounting in terms of value creation
Topic: Role of Management Accountant in Value Creation
3.
Which of the following statement/s about management accounting is/are true?
i.
It is concerned only with information obtained from the accounting records.
ii.
It is concerned with financial and non-financial information.
iii.
It can provide information useful for making decisions.
A.
i
B.
i and ii
C. ii and iii
D. ii
AACSB:
Reflective
Difficulty:
Medium
Learning Objective: 1.02 Define management accounting in terms of value creation
Topic: Role of Management Accountant in Value Creation
4.
A strategy is
i.
another name for a long-term objective
ii.
the same as an objective
iii.
a means by which an organisation plans to meet its mission and achieve its objectives
A.
i
B.
ii
C. iii
D. i and ii
AACSB:
Reflective
Difficulty:
Medium
Learning Objective: 1.06 Explain the basic concepts of strategy and how management accounting systems can support strategies
Topic: Fundamental Management Processes
5.
Which of the following is not an objective of management accounting?
A.
Providing information for making decisions
B.
Providing information for planning
C.
Providing information for control
D. Providing information for profit and loss statements
1-1
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