Understanding the Basics of Managerial Accounting 

Understanding the Basics of Managerial Accounting

A variety of organisations affect our daily lives. Manufacturers, retailers, service firms, agribusiness companies, non-profit organisations and governmental agencies provide us with a vast array of goods and services. All of these companies share two common things. First, they all have a set of goals or objectives. A bank’s goals might be profitability and customer service, or a hotel’s goals might be total quality services and cost minimisation. Second, in pursuing an organisation’s goals, managers need accurate information. The information management needs range across financial, production, marketing, legal, and environmental issues. Generally, the largest the organisation is, the greater is management’s need for information.

Managerial accounting is the process of identifying, measuring, analysing, interpreting, and communicating information in pursuit of an organisation’s goals. Managerial accounting is an integral part of the management process, and managerial accountants are important strategic partners in an organisation’s management team. The management team seeks to create value for the organisation, by managing resources, activities, and people to achieve the organisation’s goals effectively. The day-to-day work of the management team comprises four activities: decision making, planning, directing operational activities and controlling.

Nowadays managerial accounting analysis is considered so crucial in managing an enterprise that in most cases, far from playing a passive role as information providers, managerial accountants take a proactive role in both the strategic and day-to-day decisions that confront an enterprise. Although much of the information they provide is financial, there is a strong trend toward the presentation of substantial non-financial data as well. Actually, they supply all kinds of information to management and act as strategic planners in support of management’s role in decision making and managing the organisation activities.

Compared to financial accounting, managerial accounting is a young discipline that focuses on the needs of managers within the organisation, rather than interested parties outside the organisation. As a result, managerial accounting concepts and tools are still evolving as new ways are found to provide information that assists management. Moreover, the business environment is changing rapidly. For managerial accounting to be as useful a tool in the future as it has been in the recent past, managerial accounting has to be studied and improved.

In the 21st century the business environment is changing very rapidly. These changes are reflected in global competition, rapidly advancing technology, and improved communication systems, such as the Internet. The activities that make an enterprise successful today may no longer be sufficient next year. A crucial role of managerial accounting is to continually assess how an organisation stacks up against the competition, with an eye towards continuously improving. In fact, moving away from a historical cost accounting perspective and towards a proactive cost management is the challenge that an enterprise has to face. Assigning the costs to a larger number of cost pools that better represent those activities that are responsible for their birth, portrays the general idea upon which future managerial accounting will evolve.

Last Updated ( Tuesday, 20 June 2006 )

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