Managerial_Accounting

managerial accounting • is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions. • Involves the measurement of financial information that helps an entity make better decisions about its operations. • Deals with the planning and control of organization operations that include identification, measurement, accumulation, preparation, interpretation, and communication of information that assists management in fulfilling organizational objectives. • Managerial accounting is concerned with providing information to managers-that is, people inside an organization who direct and control its operation. In contrast, financial accounting is concerned with providing information to stockholders, creditors, and others who are outside an organization. financial accounting • The process of collecting, summarizing and reporting financial information of an entity according to established standards and principles. • is the field of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, employees, government agencies, owners. • A field of accounting that treats money as a means of measuring economic performance instead of as a factor of production. It encompasses the entire system of monitoring and control of money as it flows in and out of an organization as assets and liabilities, and revenues and expenses. cost accounting • A method of accounting in which all costs incurred in carrying out an activity or accomplishing a purpose are collected, classified, and recorded. This data is then summarized and analyzed to arrive at a selling price, or to determine where savings are possible. • A branch of accounting dealing with the classification, recording, allocation, summarization and reporting of current and prospective costs and analyzing their behaviors. Cost accounting is frequently used to facilitate internal decision making and provides tools with which management can appraise performance and control costs of doing business. • the process of accounting for cost, which begins with regarding and classifying of incomes and expenditures and ends with the preparation of periodical statements and reports for ascertaining and controlling costs. Importance of Financial accounting Financial accounting is a specialized branch of accounting that keeps track of a company's financial transactions. Using standardized guidelines, the transactions are recorded, summarized, and presented in a financial report or financial statement such as an income statement or a balance sheet. The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions. Financial statements prepared for this purpose meet the common needs of most users. However, financial statements do not provide all the information that users may need to make economic decisions since they largely portray the financial effects of past events and do not necessarily provide non-financial information. Financial statements also show the results of the stewardship of management, or the accountability of management for the resources entrusted to it. Those users who wish to assess the stewardship or accountability of management do so in order that they may make economic decisions; these decisions may include, for example, whether to hold or sell their investment in the enterprise or whether to reappoint or replace the management Need for Managerial Accounting Every organization - large and small-has managers. Someone must be responsible for making plans, organizing resources, directing personnel, and controlling operations. Every where mangers carry out three major activities - planning, directing and motivating, and controlling. Planning: Planning involves selecting a course of action and specifying how the action will be implemented. The first step in planning is to identify the alternatives and then to select from among the alternatives the one that does the best job of furthering the organization's objectives. While making choices management must balance the opportunity against the demands made on the companies resources. The plans of management are often expressed formally in budgets, and the term budgeting is applied to generally describe the planning process. Budgets are usually prepared under the direction of controller, who is the manager in charge of the accounting department. Typically, budgets are prepared annually and represent management's plans in specific, quantitative terms. Directing and Motivating: In addition to planning for the future, managers must oversee day-to-day activities and keep the organization functioning smoothly. This requires the ability to motivate and affectively direct people. Managers assign tasks to employees, arbitrate disputes, answer questions, solve on-the-spot problems, and make many small decisions that affect customers and employees. In effect, directing is that part of the manager's work that deals with the routine and the here and now. Managerial accounting data, such as daily sales reports are often used in this type of day-to-day decision making. Controlling: In carrying out the control function, managers seek to ensure that the plan is being followed. Feedback, which signals operations are on track, is the key to effective control. In sophisticated organizations, this feedback is provided by detailed reports of various types. One of these reports, which compares budgeted to actual results, is called a performance report. Performance report suggest where operations are not proceeding as planned and where some parts of the organization may require additional attention. The Planning and Control Cycle: The work of management can be summarized in a model. The model, which depicts the planning and control cycle, illustrates the smooth flow of management activities from planning through directing and motivating, controlling, and then back to planning again. all of these activities involve decision making. So it is depicted as the hub around which the activities revolve. Difference Between Financial and Managerial Accounting Summary: Financial Accounting Managerial Accounting • Reports to those outside the organization owners, lenders, tax authorities and regulators. • Reports to those inside the organization for planning, directing and motivating, controlling and performance evaluation. • Emphasis is on summaries of financial consequences of past activities. • Emphasis is on decisions affecting the future. • Objectivity and verifiability of data are emphasized. • Relevance of items relating to decision making is emphasized. • Precision of information is required. • Timeliness of information is required. • Only summarized data for the entire organization is prepared. • Detailed segment reports about departments, products, customers, and employees are prepared. • Must follow Generally Accepted Accounting Principles (GAAP). • Need not follow Generally Accepted Accounting Principles (GAAP). • Mandatory for external reports. • Not mandatory.