Management accounting is a field of accounting that analyzes and provides cost information to the internal management for the purposes of planning, controlling and decision making.
Management accounting refers to accounting information developed for managers within an organization. CIMA (Chartered Institute of Management Accountants) defines Management accounting as “Management Accounting is the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of information that used by management to plan, evaluate, and control within an entity and to assure appropriate use of an accountability for its resources”. This is the phase of accounting concerned with providing information to managers for use in planning and controlling operations and in decision making.
Managerial accounting is concerned with providing information to managers i.e. people inside an organization who direct and control its operations. In contrast, financial accounting is concerned with providing information to stockholders, creditors, and others who are outside an organization. Managerial accounting provides the essential data with which organizations are actually run. Financial accounting provides the scorecard by which a company’s past performance is judged.
Because it is manager oriented, any study of managerial accounting must be preceded by some understanding of what managers do, the information managers need, and the general business environment.
|External vs. Internal||A financial accounting system produces information that is used by parties external to the organization, such as shareholders, bank and creditors.||A management accounting system produces information that is used within an organization, by managers and employees.|
|Segment reporting||Pertains to the entire organization or materially significant business units.||May pertain to smaller business units or individual departments, in addition to the entire organization.|
|Focus||Financial accounting focuses on history.||Management accounting focuses on future & present.|
|Format||Financial accounts are supposed to be in accordance with a specific format, so that financial accounts of different organizations can be easily compared. (Formal recordkeeping)||No specific format is designed for management accounting systems. (Formal and informal recordkeeping)|
|Planning and control||Financial accounting helps in making investment decisions, and in credit rating.||Management accounting helps management to record, plan and control activities to aid decision-making process.|
|Information||Quantitative and monetary||Quantitative and qualitative; Monetary and non-monetary|
|Users||Financial accounting reports are primarily used by external users, such as shareholders, bank and creditors.||Management accounting reports are exclusively used by internal users viz. managers and employees.|
|Reporting frequency and duration||Well-defined - annually, semi-annually, quarterly. (Verifiable)||As needed - daily, weekly, monthly.|
|Optional?||Preparing financial accounting reports are mandatory especially for limited companies.||There are no legal requirements to prepare reports on management accounting.|
|Objectives||The main objectives of financial accounting are :i) to disclose the end results of the business, and ii) to depict the financial condition of the business on a particular date.||The main objectives of Management Accounting are to help management by providing information that used by management to plan, evaluate, and control.|
|Legal/rules||Drafted according to GAAP - General Accepted Accounting Procedure.||Drafted according to management suitability.|
|Accounting process||Follows a full process of recording, classifying, and summmarising for the purpose of analysis and interpretation of the finnancial information.||Cost accounts are not preserved under Management Accounting. The necessary data from financial statements and cost ledgers are analyzed.|