Management Accounting: Its Principles And Importance

1398 words - 6 pages

In a competitive business environment, all organizations take on the full responsibility or accounting and management. So, what is management accounting? Management accounting is accounting however in a sense that it includes the production of all useful information in an organization. This may be comprised of information where such may be financial or nonfinancial, accurate or broadly correct, actual or estimated, detailed or highly aggregated, presented in various forms either written or spoken which also includes graphs and tables, and is primarily related to profits and/or losses, volumes, trends and etc. (Coombs, Hobbs and Jenkins, 2005,p.2)
According to the Chartered Institute of Management Accountants [CIMA], management accounting is the combination of accounting, finance and management that holds the forefront to a successful business (CIMA). This definition from CIMA is generally accepted as the definition for management accounting since some of its known definitions and descriptions were too broad and imprecise. Terence Lucey (2003) could generally define management accounting as an integral part of management, which involves identification, presentation and interpretation of information, which will be used in the following:
• Strategy formulation
• Activity planning and control
• Decision taking
• Optimizing the use of resources
• Disclosure to shareholders and others external to the entity
• Disclosure to employees
• And safeguarding assets
Management accounting is a critical profession that drives a business performance of an organization (Institute of Management Accountants, Inc. [IMA]). In the course of this discussion, we will tackle about the principles, purposes and the importance of management accounting so as its advantages and limitations.
The purpose of management accounting is to provide relevant information for decision-makers by collecting, managing and reporting information as demanded by their users whether insiders such as managers and outsiders or persons interested in the company. These reports includes monetary and non-monetary information which are used to consider the concepts of determining topics such as budgeting, break-even analysis, product costing, profit planning, and costs analysis which is important in decision-making including projections and predictions for planning and control decisions (“Managerial Accounting Concepts and Principles”).
The objectives of management accounting can be enumerated as follows (Prasad and Sinha, 1990):
1. It provides valuable guidelines for planning future policies and setting company or organization goals.
2. It provides assistance for directing and coordinating business transactions and operations.
3. It provides assistance in the analyzing and interpreting financial data provided by various departments.
4. It is beneficial in control operations by establishing the proper standards of performance and construct an organization suitable for such control.
5. It supplies...

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