Description

Description: This course will equip students with an understanding of key costs and managerial accounting techniques used in costs control, costs management and planning.

Background: An examination of the various users of accounting information indicates that they can be divided into two categories:

1-internal parties within the organization;
2-external parties such as shareholders, creditors and regulatory agencies, outside the organization.

It is possible to distinguish between two branches of accounting that reflect the internal and external users of accounting information. Management accounting is concerned with the provision of information to people within the organization to help them make better decisions and improve the efficiency and effectiveness of existing operations, whereas financial accounting is concerned with the provision of information to external parties outside the organization. Thus, management accounting could be called internal accounting and financial accounting could be called external accounting.

Differences between management accounting and financial accounting

Financial accounting reports are prepared for the use of external parties such as shareholders and creditors, whereas management accounting reports are prepared for managers inside the organization.
The major differences between these two branches of accounting are:

• Legal requirements. There is a statutory requirement for public limited companies to produce annual financial accounts. Management accounting, by contrast, is entirely optional and information is produced for internal management use.

• Focus on individual parts or segments of the business. Financial accounting reports describe the whole of the business, whereas management accounting focuses on small parts of the organization - for example, the cost and profitability of products, services, customers and activities.

• Generally accepted accounting principles. Financial accounting statements must be prepared to conform to the legal requirements and the generally accepted accounting principles established by the regulatory bodies such as the Australian Accounting Standards Board in Australia. In contrast, management accountants are not required to adhere to generally accepted accounting principles when providing managerial information for internal purposes.

• Time dimension. Financial accounting reports what has happened in the past in an organization, whereas management accounting is concerned with future information as well as past information.

• Report frequency. A detailed set of financial accounts is published annually and less detailed accounts are published semi-annually. Management accounting reports on various activities may be prepared at daily, weekly or monthly intervals.