Managementaccounting is an accounting discipline that is involved in thepreparation of reports and accounts that are used in the dailyoperations of the activities of the organization. The reports andaccounts are prepared by divisional managers (or departmentalaccountants on their behalf) to assist them to make better decisions.However, unlike in financial accounting management accounting isbased on investment centers or profit centers (Kaplan& Atkinson, 2015).After the preparation of the accounts, strategies are devised, andperformance appraisal is made, which involves comparing the standardbudgets and the actual budgets. In short, management accounting isused to assist managers to make better and informed decisions in theday to day operations of the organizations (Otley &Emmanuel,2013).
Strategicmanagement is where the organization aligns its objectives and goalswith its plans (Hopper& Bui, 2016).Management accounting comes in by providing the relevant informationrequired in strategic management, this type of information is mostlyforecasted information. The past information is analyzed usingstatistical tools and trend can be established which is used to givefuture forecasting of the revenue of the organization if the agreedstrategies are be followed. Many organizations have createdinvestment centers to increase their profits. This has been madepossible by the fact that management accountants can predict thefuture consumer demand, future revenue and the target price in a newmarket (Otley &Emmanuel, 2013).
Helpsin understanding how production cost in manufacturing industries canbe reduced. Management accountants help reduce the cost by measuringthe cost of resources which include labor, time and raw materials.When the business managers are aware of the costs of running theoperations of their businesses, they can reduce the expenses bysourcing cheaper raw material, labor cost and also distribution costwithout compromising on the quality (Kaplan& Atkinson, 2015).This would be useful in increasing the profits of the investmentcenters.
Managementaccountants use budgets to predict the expenditure of the nextfinancial period, where they will analyze the historical managementand financial information and create cash budget, departmentalbudgets and master budgets for the whole organization (Hopper& Bui, 2016).Budgets help companies realize their relevant costs and irrelevantcosts, leading to increased savings on expenditure.
Managersare primary beneficiaries of management accounting information. Thisis because managers use this information to make better decisions.Initially, managers used to make decisions based on experiences andinstitution, but today they can confirm their decisions usingmanagement accounting information which is precise and correct. Thisinformation tends to be reliable to managers as it can be relied uponto make decisions. It is also relevant since its knowledge caninfluence the change of a decision (Hopper& Bui, 2016).
Finally,management accounting is used in the appraisal of the firm’sperformance, where the performance of the whole firm and itsdepartments are analyzed and evaluated over time. Managementaccountants use the past performance of the firm which is comparedwith current performance graphs are then drawn to present the trend(Hopper & Bui, 2016).Depending on the graph the firm can either be improving ordeteriorating in its performance.
Itcan be concluded that management accounting is important in therunning of the organization as it provides information that is notavailable in financial accounting, hence assisting managers to makebetter decisions (Otley &Emmanuel, 2013).
Hopper,T., & Bui, B. (2016). Has management accounting research beencritical? ManagementAccounting Research,31,10-30.
Kaplan,R. S., & Atkinson, A. A. (2015). Advancedmanagement accounting.PHI Learning.
Otley,D., & Emmanuel, K. M. C. (2013). Readingsin accounting for management control.Springer.