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Management accounting

What is management accounting?

Management Accounting is the process of preparing management reports and accounts. The aim is to provide accurate and timely financial and statistical data that is required by the managers of the organisation to make day-to-day and short-term decisions.

How is management accounting implemented?

Management accounting extends to the following three areas:

  1. Strategic management—advancing the role of the management accountant as a strategic partner in the organization.
  2. Performance management—developing the practice of business decision-making and managing the performance of the organization.
  3. Risk management—contributing to frameworks and practices for identifying, measuring, managing and reporting risks to the achievement of the objectives of the organization.

Differences between management accounting and financial accounting:

  1.  Management accounting provides information to the managers of the business while financial  accounting provides information to the business’ shareholder or the public.
  2. Financial accounting is required by law while management accounting is not.
  3. Financial accounting covers all of the area in a business while management account only provides key interests.

 What information would management accounting normally provide?

Management accounting would generally provide the following information to the business’ management:

  1. Information regarding the products and services of the business.
  2. The budgets of the business.
  3. Performance reports that indicate the differences between budgets of a certain period.
  4. Other information that may help managers in their control and planning.

 The ratios that are used in management accounting:

  1. Efficiency or or activity ratios that will include liquidity.
  2. Gearing; It shows the long-term financial status of the business.
  3. Profitability or performance rations that will indicate how the business is faring in terms of revenue.