Management Accounting

Management accounting or managerial accounting is defined as the process of identifying, measuring, analyzing, interpreting, and communicating information for the pursuit of an organization's goals. Management accounting is an accounting that is concerned with providing information to managers, people inside an organization who direct and control its operation. Management accounting is in contrast to financial accounting, which is concerned with providing information to stockholders, creditors, and others who are outside an organization. Managerial accounting is also known as managerial accounting or cost accounting.

Management accounting prepares a variety of reports. Among these reports some focus on how well managers or business units have performed-comparing actual results to plans and to benchmarks. Among them some provide timely, frequent updates on key indicators such as orders received, order backlog, capacity utilization, and sales. Some reports prepared as needed to investigate specific problems such as a decline in the profitability of a product line. Finally some reports analyze a developing business situation or opportunity. In contrast to financial accounting which is oriented toward producing a limited set of annual and quarterly financial statements in accordance with Generally Accepted Accounting Principles (GAAP)

Management accounting provides reports to those who work inside the organization for planning, directing and motivating, controlling and performance evaluation. It emphasizes on the decision that affect the future of the organization.  Management accounting focuses on costs and hence managerial accounting is an excellent tool for internal decision making, budgeting, and planning. In microeconomics, management accounting makes use of budgets and cost volume-profit analysis to fully explore not only breakeven relationships but those volumes or activity levels necessary to generate target levels of profit.

The fundamental elements of managerial accounting as summarized into five major standards. These elements are accumulating and reporting costs of activities on a regular basis for management information purposes, establishing responsibility segments to match costs with outputs, determining full costs of government goods and services, recognizing the costs of goods and services provided among federal entities, and using appropriate costing methodologies to accumulate and assign costs to outputs. 

Questions:

• What is management accounting?
• What are the fundamental elements of management accounting?