No. 125 Brgy.

San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

MS09-01: MANAGEMENT ACCOUNTING

“Business organizations are normally not under the supervision of its owners and investors. These
individuals opt to entrust the operations of the organization to its management. Due to this trust given to
them by the owners, managers must ensure organization’s objectives are met by planning, organizing,
leading, and controlling various tasks of the organization.”

DEFINITION OF BUSINESS AND BUSINESS OWNERS

A business is an organization engaged in manufacturing, trading, or service activity (or a
combination of these activities) to earn a profit. However, as the global business environment
evolves, a business is already defined as an organization sharing a vision and mission working
for a common goal.

Individuals who invested capital into a business are called investors (or business owners). More
often than not, business owners are usually misunderstood as management. However, in its real
sense, business owners are usually contributors of capital, unless they are actively involved in
the operations of the business. Business owners, who do not want to actively participate in the
operations of the business, normally entrust the future of the business organization to its
management.

DEFINITION OF MANAGEMENT AND THE MANAGEMENT FUNCTION

Management, as the recipient of trust from the business owners, should ensure that the
organization operates effectively and efficiently and that business owners will receive favorable
return from its investment. According to Peter Drucker, management is a multi-purpose organ
that manages business, managers, workers, and work. Mary Parker Follet, on the other hand,
defined management as the art of getting things done through people. These definitions, as it
may be seen, pertains to management as a process of attaining objectives through managing
people.

However, as the global business environment changes, the military definition of management (i.e.
directing people) has evolved and has become more dynamic. Today, management is composed
of four basic process namely planning, organizing, leading, and controlling. Specifically, the
following functions are defined below:

1. Planning – is the process of setting goals for the organization and ensuring that the
company is prepared for its day to day operations. Common activities under this are
budgeting, cost volume profit analysis, and forecasting.
2. Organizing – is the process of developing an organizational structure and assigning
people to ensure the accomplishment of objectives. Common activities under this are
departmentalization or decentralization.
3. Leading – is the process of empowering an organization, including its people. Common
activities under this are human resource development, training, and team building
activities.
4. Controlling – is the process of ensuring that the organization is performing well, in
reference to their chosen standard and/or benchmark. Common activities under this are
variance analysis, performance report, and responsibility accounting.

In general, all of these four functions are performed by management to ensure that organizational
objectives are met and that business owners are receiving return from their investment.

THE VALUE OF INFORMATION

Management, in performing its function, requires information to ensure that business is working
effectively and efficiently. Without information, management cannot assess if the plan they have
prepared worked out well, if the organizing and leading process is working effectively, and if the
control process is still being implemented. Thus, information, whether financial or non-financial,
is required in order to assist management in performing their basic functions.

DEFINITION OF MANAGEMENT ACCOUNTING

As discussed above, managers require relevant and reliable information which would serve as
the basis of their day to day decisions. Due to this need for information, accountants are assigned

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

to perform management accounting. Management accounting is defined to be the branch of

accounting that aims to identify, accumulate, analyze, interpret, and communicate various
information to support the management function.

MAIN OBJECTIVES OF MANAGEMENT ACCOUNTING

The main objectives of management accounting are the following:
• Make information available and understandable to management;
• Assist management in performing its function;
• And help the organization in achieving its short-term and long term goals.

SCOPE OF MANAGEMENT ACCOUNTING

The main scope of management accounting are the following:
• Information Gathering
• Data Analysis and Reporting
• Decision Making

FINANCIAL ACCOUNTING AND ITS DIFFERENCE FROM MANAGEMENT ACCOUNTING

Business organizations, apart from management, also have various stakeholders such as
customers, investors, government, suppliers, and etc. which demand relevant and reliable
information about the business operations specifically its profit and current financial position.
Despite this information need, these stakeholders have no direct access to the company’s
accounting records. Due to this demand, accountants are required to perform financial accounting
which involves the preparation of general-purpose financial statements for various stakeholders.

According to the framework, stakeholders are investors (potential and current) - concerned with
the risk inherent and the return provided by their investment. It is also an important venue to
know whether the investor should hold, sell, or buy an investment; employees – main concern is
the profitability of their employers and the capacity to provide remuneration, retirement benefits
and employee opportunities; lenders – main concern is the capacity to pay the loan due to them;
suppliers (other trade creditors) – capacity to pay the debt due to them but normally on a short
term planning horizon; customers – continuance and dependence theory; and governments –
concerned with public regulation, levy of taxes, allocation of resources.

Area Management Accounting Financial Accounting

End User Internal User – Management Various Stakeholders
Frequency Frequently, Depending on Annual or depending on rules and regulation
Management Needs
Reports Management Needs Reports are limited to financial aspect
Pertains to part/entire company Pertains to the entire company
Future Oriented Past oriented/Historical
Regulation Optional and not regulated Required by various government agencies
and is regulated
Types of Unrestricted (not based on double Restricted (based on double entry
accounting entry bookkeeping) bookkeeping)
system
Measurement Not limited to monetary value (maybe Limited to monetary value (historical peso
financial, nonfinancial, or statistical) value)

LINKAGE BETWEEN FINANCIAL AND MANAGEMENT ACCOUNTING: COST ACCOUNTING

Cost pertains to a resource “given up” or “to be given up” to attain a specific objective. Usually,
costs are driven by various activities within an organization (cost driver). Accounting, on the other
hand, is simply defined as the language of business because it identifies, analyzes, interprets,
and communicates business information to various users. Combining the two definitions together,
cost accounting is a branch of accounting that deals with the process of identifying, analyzing,
interpreting, and communicating cost information to various users.

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

COST ACCOUNTING AND VARIOUS USERS OF COST INFORMATION

Cost information has various uses depending on the objective of the user. Generally, information
stakeholders can be classified as external and internal.

INTERNAL Managers, at different levels, are the most common internal users
USERS OF of cost information. As defined in our basic management courses,
COST managers are task to perform the process of planning, leading,
INFORMATION organizing and controlling tasks in order to achieve company’s
objectives. Due to this, managers are expected to use cost
information in order to plan and control business operations.

EXTERNAL There are various external users of cost information such as

USERS OF investors, employees, governments, and other parties. Take note
COST that the primary characteristic common to all external users is that
INFORMATION they have limited access to information. As such, they only rely on
published reports regarding cost information. However, kindly take
note that these stakeholders have various objectives in dealing with
cost information.

Both financial and management accounting pertains to accumulation of information and

communicating this information to its various users and the most common source of their
information is cost accounting.

ACCOUNTANTS IN ORGANIZATION
Note that accountants assist management in performing its various functions. As such,
accountants may be strategically positioned in various departments to obtain a more vivid
understanding of the entity’s operations. The position of accountants, although deployed in
various departments, are still usually considered as staff function and not a line function.

Staff function supports the organization although not directly involved in its front operations, while
line positions are those directly dealing with customers (that is front operations).

CONTROLLSERSHIP VERSUS TREASUERERSHIP

Controllership is a science of control which is the process by which management assures itself
that the resources acquired are used effectively and efficiently. Specifically, the controller has the
following, but not limited to, functions:
1. Planning for control
2. Financial Reporting
3. Management Audit
4. Tax administration
5. Government Reporting
6. Economic appraisal

Treasurership is a science of management of funds/finances. Specifically, the treasurer has the

following functions:
1. Provision of capital
2. Investor relations
3. Short term financing
4. Banking and custody of fund
5. Investments
6. Insurance

In a traditional environment, the controller is normally the chief finance officer of the company.
However, as the organization evolves, the chief finance officer is already different in the controller
as it occupies a seat in the top management team, capable of making financial decisions.

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

ETHICAL STANDARDS IN ACCOUNTING

In performing our function, the following ethical standards must be observed by all accountants,
regardless of area/subject matter:

1. Integrity –avoid being associated with incorrect, incomplete, misleading statements .

2. Objectivity – it means being fair, honest, and free from conflict of interest (e.g. bias)
3. Professional Competence and Due care – a consultant should strive to improve his knowledge
and skills to ensure that client receive a competent service. Due care encompasses
compliance with technical and professional standards, thorough examination and on a timely
basis.
4. Confidentiality – the consultant must not disclose or use for own personal advantage any
information acquired in the course of the professional relationship, unless with authority,
required by law (evidence in court, infringement) right, or duty to disclose (quality review, self-
protection, comply with ethics). This standard extends to social environment, prospective
client, each staff, and expert used, as well as after business relationship.
5. Professional Behavior – refrain from actions that will discredit the profession. A consultant
must not make exaggerated claims and comparisons.

References:
1. Hilton, 9th Edition. Managerial Accounting. Irwin Mc-Graw Hill.
2. Garrison/Noreen, 12th Edition. Managerial Accounting. Irwin Mc-Graw Hill.
3. Various reviewers in Management Advisory Services.
4. Actual AICPA/Philippine CPA Board Examinations in Management Advisory Services.

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

MS09-01Q: INTRODUCTION TO MANAGEMENT ACCOUNTING

DIRECTION: READ EACH STATEMENTS CAREFULLY. CHOOSE THE LETTER OF THE

BEST ANSWER.

1. The manager in charge of the accounting department in an organization.

a. Chief financial officer.
b. Controller.
c. Treasurer.
d. President.

2. Management and financial accounting are used for which of the following purposes?
Management accounting Financial accounting
a. internal external
b. external internal
c. internal internal
d. external external

3. This consists of identifying alternatives, selecting from among the alternatives the one that is
best for the organization, and specifying what actions will be taken to implement the chosen
alternative.
a. Planning
b. Controlling
c. Directing
d. Motivating

4. This consists of preparing variance analysis to help management identify weaknesses in

operations and areas for improvement.
a. Planning
b. Controlling
c. Directing
d. Motivating

5. A member of top management team who is responsible for providing timely and relevant
data to support planning and control activities and for preparing financial statements for
external users.
a. Chief financial officer.
b. Controller.
c. Management Accountant.
d. Treasurer.

6. The phase of accounting concerned with providing information to managers for use in
planning and controlling operations and in decision making.
a. Financial accounting
b. Cost accounting
c. Corporate Finance
d. Managerial accounting

7. Managerial accounting places considerable weight on:

a. International Financial Reporting Standards.
b. the historical background of the entity.
c. the proper bookkeeping and recording of transactions.
d. detailed segment reports about departments.

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

8. Management accounting places more emphasis on and less emphasis

on than financial accounting.
a. Nonfinancial data, precision
b. Actual data, estimates
c. Estimated data, budgets
d. Nonfinancial data, planning

9. The following are functions of a Treasurer:

a. Provision for capital.
b. Investor relations.
c. Short term financing.
d. All of the above.

10. The following are functions of a Controller, except:

a. Planning for control
b. Financial reporting
c. Investments
d. Economic Appraisal

11. The phase of accounting concerned with providing information to managers for use in
planning and controlling operations and in decision making is called:
a. throughput time.
b. managerial accounting.
c. financial accounting.
d. controlling.

12. A position in the organization chart that provides service or assistance to other parts of the
organization and does not directly achieve the basic objectives of the organization.
a. a staff position.
b. a line position.
c. chief finance officer.
d. controller.

13. One major difference between financial and management accounting is that
a. financial accounting reports are prepared primarily for users external to the company.
b. management accounting is not under the jurisdiction of the Securities and Exchange
Commission.
c. government regulations do not apply to management accounting.
d. all of the above are true.

14. A position in the organization chart that is directly related to achieving the basic objectives of
an organization is called:
a. a staff position.
b. a line position.
c. chief finance officer.
d. controller.

15. ________________ is an example of a line position in a Bank

a. Controller
b. Chief financial officer
c. Branch Manager
d. Human resources manager

16. Professional Competence Standards require that a management accountant to:

a. Report information, whether favorable or unfavorable.
b. Discuss the ethical conflicts and possible courses of action with an unbiased
counselor.
c. Develop his/her professional proficiency on a continual basis.
d. None of the above.

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]

17. A management accountant may disclose confidential information in which of the following
circumstances:
a. Such is required by law.
b. The accountant knowingly communicates the information indirectly through a
subordinate.
c. An officer at the management accountant’s bank has requested the information on a
transaction to influence the stock price.
d. There is an ethical conflict and the board refused to resolve it.

18. Management accounting

a. is less concerned with segments of a company than is financial accounting.
b. is more constrained by rules and regulations than is financial accounting.
c. is more concerned with the future than is financial accounting.
d. all of the above are true.

19. Management accounting information

a. uses historical cost as the basis for reports to managers who are making decisions
about future courses of action.
b. should be developed and provided only if its benefits exceed its costs.
c. does not reflect the financial criteria of verifiability or consistency.
d. should serve the basic needs of investors and creditors.

20. Managerial accounting places considerable weight on:

a. generally accepted accounting principles.
b. the financial history of the entity.
c. ensuring that all transactions are properly recorded.
d. Detailed segment reports about departments, products, and customers.

“The price of success is hard work, dedication to the job at hand, and the determination that
whether we win or lose, we have applied the best of ourselves to the task at hand.” –
Vincent Lombardi

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