Introduction to

Managerial Accounting
Topic 1
Topic Outline
Definition of Accounting
Branches of Accounting
Management Accounting defined
Differences between Management accounting and Financial
Accounting
The Need of Management Accounting
Management Accountant and Organization Structure
Ethics and management accounting

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What is Accounting?
• “Accounting is the process of identifying , measuring and
communicating economic information to permit informed judgements
and decisions by users of the information” (AAA)
• AICPA defines accounting as “the art of recording, classifying and
summarizing in a significant manner and in terms of money,
transactions and events which are in part atleast, of a financial
character and interpreting the results thereof.”
• Question to ask – is accounting only focus on money or number?

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Branches of Accounting
• Accounting focus on providing information to users for decision
making….
• In order to satisfy needs of different users, different branches of
accounting have been developed
• Financial Accounting
• It is confined to the preparation of FS for the use of outsiders like creditors, investors,
regulatory bodies, customers etc...
• Management Accounting
• It is accounting for the management i.e. provides necessary information to the
management for discharging its functions.

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What is Management Accounting
• Based on Hongren Book 14th Ed, it is defines as the branch of accounting
that measures, analyzes, and reports financial and non-financial
information that help managers make decisions to fulfill the goals of an
organization.
• Management Accounting help managers to do the following functions
• Planning
• Controlling
• Decision Making
• Directing and Motivating
• The main areas of management accounting are Costing, Planning, Decision
Making, Control, Performance Evaluation…
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Functions of Management Accountant
• Establishing strategy, selecting a course of action and specifying
Planning how the action will be implemented.

Directing and • Mobilizing people to carry out plans and run routine operations.
Motivating
• Involving ensuring that the plan is actually carried out as planned
Controlling and is appropriately modified as circumstances change.

• Helping and entity in choosing the best option by feeding others

Decision Making with information relevant for their decision making process.

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Planning and Controlling Cycle
Planning –
setting
strategy.

Comparing
Actual to Decision Directing and
Planned Motivating
Performance Making

Measuring
Actual
Performance

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Financial Accounting and Management
Accounting
Financial Accounting Management Accounting
1. Primary users External Users including creditors Internal Users – managers
and investors
2. Focus and Past – oriented Future – oriented
Emphasis
3. Rules of Guided by IFRS, GAAP, Not guided by IFRS or GAAP but follow cost-benefit
Measurement and analysis and “managers discretion”
Reporting
4. Time frame of They are commonly annual reports, Depends on the manager`s needs i.e. it can be day
the report semi-annually or quarterly report or 5 years report.
5. Scope of the Focus on the whole organization, Focus on a specific areas of organization activities.
report reports are aggregated for whole
entity
6. Nature of Mostly focus on financial – Shows both financial and non-financial information
Information information e.g. miles travelled by salesperson, monthly
machine hours etc.

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Financial Accounting and Management
Accounting
Financial Accounting Management Accounting
7. Focus on Objectivity and Verifiability Focus on Relevance
8. It is mandatory to prepare Financial Accounting It is not mandatory
Reports

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Cost Accounting
• Cost accounting (CA) and management accounting are terms which
are often used interchangeably. Cost accounting is part of
management accounting. Cost accounting provides a bank of data
for the management accountant to use.
• CA is the 'gathering of cost information and its attachment to cost objects, the
establishment of budgets, standard costs and actual costs of operations,
processes, activities or products; and the analysis of variances, profitability or
the social use of funds.‘
• Management Accounting involves using financial and cost data and
communicating it as information to users.

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Advantages of Management Accounting
• Better Planning for future polices
• Controlling Management Performance
• To motivate the workforce
• Up to Date Financial Information
• To reduce Tax expenses
• Cash flow management
• To ensure Cost control
• Preparation of Budgets etc...

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Management Accountant and
Organization Structure
• Organization distinguish between Line Management and Staff
management.
• Line Management such as production, marketing , distribution, R&D are
directly responsible for attaining goals of the entity
• Staff management such as management accountant, IT manager and Human
Resources management provides advice, support and assistance to line
management.
• Management Accountant in many organization is called Controller or
Chief Accounting Officer.
• Is the financial executive primarily responsible for MA and FA. Management
Accountant reports to CFO who in turn reports to CEO

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Ethics and Management Accounting
• The work of management accountant is no exceptional to Professional
Ethics.
• Institute of Management Accountant (IMA) in USA have issued guideline to
ethical issues including
• Competence - professionalism
• Integrity
• Confidentiality
• Credibility
• IMA`s guidelines also issues ways of dealing with an ethical dilemma.
• IMA Statement of Ethical Professional Practice.pdf

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Qualities of Good information used in
Management Accounting
• Must be Accurate
• Must be Complete (but not excessive)
• Must be Cost Effective (benefits > cost)
• Must be Understandable to users
• Must be Relevant to the decision being made
• Must be Accessible i.e. communicated by an appropriate channel
• Must be Timely
• Must be Easy to Use

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End of the Lecture Exercise
• Class Exercise.docx

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