Managerial Accounting

1. MANAGERIAL ACCOUNTING
INTRODUCTION (PART -1)
By: Ishara .S. Saranapala

2. WHAT IS ACCOUNTING?
The American Accounting Association defined
accounting as:
“The process of identifying, measuring and
communicating economic information to permit
informed judgments and Decisions by users of the
information”.
- The Language of Business –

3. THE NATURE OF ACCOUNTING
 The accounting system is a series of steps (process)
performed to analyze, record, quantify, accumulate,
summarize, classify, report and interpret economic events
and their effects on an organization and to prepare the
financial statements.
 accounting systems are designed to meet the needs of the
decision makers who use the financial information.
 Every business has some sort of accounting system.
- These accounting systems may be very complex or very
simple, but the real value of any accounting system lies in
the information that the system provides

4. ACCOUNTING AS AN AID TO DECISION MAKING
Accounting information is useful to anyone who
makes decisions that have economic results.
- Managers want to know if a new product will be
profitable.
- Owners want to know which employees are
profitable.
- Investors want to know if a company is a good
investment.
- Creditors want to know if they should extend credit,
how much the extend, and for how long.
- Government regulators want to know if financial
statement confirm to requirements.

5. ACCOUNTING AS AN AID TO DECISION
MAKING
Fundamental relationships in the decision
making process.

7. ACCOUNTING, ACCOUNTABILITY AND THE
ACCOUNT
 Accounting is a collection of systems and processes used
to record, report and interpret business transactions.
 Accounting provides an account – an explanation or
report in financial terms – about the transactions of an
organization.
 It enables managers to satisfy the stakeholders in the
organization (owners, government, financiers, suppliers,
customers, employees etc.) that they have acted in the best
interests of stakeholders rather than themselves. This is the
notion of accountability to others, a result of the
stewardship function of managers that takes place through
the process of accounting.

8. BRANCHES OF ACCOUNTING
Basically there are three branches:
 Financial Accounting (FA)
 Management Accounting (MA)
 Cost Accounting (CA)

9. WHAT IS FINANCIAL ACCOUNTING (FA)?
 Accountability results in the production of financial
statements, primarily for those interested parties who are
external to the business. This function is called financial
accounting.
 The objective of FA is to record the business transactions
systematically and classify and interpret them to report
the state of affairs to the end users.
 The output of FA is thus, mainly intended to benefit the
shareholders, lenders, employees, taxation authorities,
business partners etc.

10. The scope of the business environment has
undergone unprecedented changes during the last
century.
To stay afloat in the highly turbulent and
competitive business environment, they need to
excel in multi-dimensional activities such as cost
reduction, maintaining high product quality,
competitive pricing and the last and the most
important driving force, i.e. customer satisfaction.

11. The management of organizations to meet a foreside
objectives, require information, that is, relevant and
effective to arrive at decisions.
Information contained in FA is hardly of any use to
achieve these objectives, because of two major short
comings it suffers from:
 They are historical in nature.
They give costs incurred by the organization as a
whole
Therefore in order to perform and support the above
objectives Management Accounting and Cost
Accounting has emerged.

12. WHAT IS MANAGEMENT ACCOUNTING
(MA)?
 MA is an accounting system which encompasses various
techniques and processes that are intended to provide financial
and non financial information to people within an organization to
make better decisions and thereby achieve organizational control
and enhance organizational effectiveness.
 Management Accounting is "the process of identification,
measurement, accumulation, analysis, preparation, interpretation
and communication of information used by management to plan,
evaluate and control within an entity and to assure appropriate
use of and accountability for its resources. (CIMA-UK)

13. Cont……… (Part – 2)