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Arun Patil
Lesson 1 Introduction to Management Accounting
What is accounting?
Accounting is an information system. It exists to provide information for the end-user. It is possible to distinguish between two branches of accounting.
1 Financial accounting.
The purpose of financial accounting is to report the financial performance of the company. It’s main focus is on external reporting to a number of groups viz.
Owners ( shareholders )
Loan creditors ( banks )
Trade creditors (suppliers )
Sundry creditors ( suppliers of services )
Government agencies ( tax authorities )
Employees ( trade unions )
A set of financial statements - a profit and loss account, a balance sheet and a cash flow statement are prepared and published.
2 Management accounting
The main purpose of management accounting is to provide information to the management team at all levels within the organisation for the following purposes:
(a) formulating the policies - strategic planning
(b) planning the activities of the organisation - corporate planning
(c) controlling the activities of the organisation
(d) decision-making - long-term and tactical
(e) performance appraisal at strategic and operational level
Definition: Management accounting is the application of professional knowledge and skill in the preparation and presentation of accounting information in such a way as to assist management in the formulation of policies and in planning and controlling the operations of the organisation.
Let us look at a simple financial statement.
What is accounting?
Accounting is an information system. It exists to provide information for the end-user. It is possible to distinguish between two branches of accounting.
1 Financial accounting.
The purpose of financial accounting is to report the financial performance of the company. It’s main focus is on external reporting to a number of groups viz.
Owners ( shareholders )
Loan creditors ( banks )
Trade creditors (suppliers )
Sundry creditors ( suppliers of services )
Government agencies ( tax authorities )
Employees ( trade unions )
A set of financial statements - a profit and loss account, a balance sheet and a cash flow statement are prepared and published.
2 Management accounting
The main purpose of management accounting is to provide information to the management team at all levels within the organisation for the following purposes:
(a) formulating the policies - strategic planning
(b) planning the activities of the organisation - corporate planning
(c) controlling the activities of the organisation
(d) decision-making - long-term and tactical
(e) performance appraisal at strategic and operational level
Definition: Management accounting is the application of professional knowledge and skill in the preparation and presentation of accounting information in such a way as to assist management in the formulation of policies and in planning and controlling the operations of the organisation.
Let us look at a simple financial statement.