Management Accounting - Introduction

Management Accounting - An Introduction

Like most of the intro lectures, this is going to be quite brief, the real 'meat' is in the next lectures!

What is accounting?

Seems like an easy question...but it's something you need to learn! My answer at first was "erm it's you know money and stuff and balance sheets". This is not a model answer!

Accounting is:

The process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information.

Or to put it simply: Accounting is getting economic information and giving it to people who need it in order to make decisions about it.

But who are the 'users of information'?. Well we can split them up into 2 categories:

• Internal parties


• External parties

This course is all about the internal parties that use accounting information.

So, management accounting is useful to parties within the organisation

What's it for?

So why might people in the business need accounting info? I'll tell you why! So that they can make decisions on the day-to-day operation and the long term strategy decisions of the business.

As you might guess, it's managers who we're normally supplying this info to.

Based on the information that managers get from this, they might make some changes to the business, such as:

• Shifting from manufacturing to servicing strategies


• Advancing technologies


• Changing the procedures the business uses

Differences between management and financial accounting

Why not put this in a fun table?



Lovely.

What else does management accounting lead to?

Glad you asked. There are 4 main things that come from it:

• Developing long term strategies


• Determining costs and benefits


• Allocating resources


• Evaluating performance and control of performance

What makes management accounting useful?

The info is useless unless it meets certain criteria, which are:

• Comparability - You need to be able to compare it with other accounting info to see if it's good or not


• Reliability - Don't go putting your own bias on the info!


• Understandability - Don't go doing something stupid like writing all your accounting info in Base 2


• Relevance - If you supply some info based on data from 5 years ago, that's no use to anyone. I can just imagine one of Woolworth's accountants: "Sir, based on 1986 accounting data it looks like we're set to thrive in the recession!"

So that's really all there is for the introduction. Check back soon for the next topic! (This course has 2 lectures a week, if I fall behind on recapping them then give me a kick and I'll do them)