What is Management Accounting?

Management Accounting

Management accounting purpose is to provide managers with relevant information for decision making. Decision making is an important management function, process does not always follow a set pattern because decisions vary significantly in their scope, urgency, and importance.

The Building Blocks of Accounting

• Ethics in financial reporting •  Generally accepted accounting principles • Measurement principles
• Assumptions

The Basic Accounting Equation

• Assets •  Liabilities • Owner’s equity.

Using the Accounting Equation

•  Transaction analysis • Summary of transaction.

Financial Statement

•  Income statement • Owner’s equity statement • Balance sheet • Statement of cash flows.

Who Uses Accounting Data? 

The financial information that users need depends upon the kinds of decisions they make.There are two broad groups of users of financial information are Internal users and external users.
Internal users __ Managers who plan, organize, and run the business, marketing managers,
production supervisors, finance directors and company officers.
External users __ External users are individuals and organizations outside a company who want financial information about the company. Investors and creditors are two most common
types of external users.
Investors __ Use accounting information to decide whether to buy, hold, or sell ownership shares of a company.
Creditors ( suppliers and bankers) __ Use accounting information to evaluate the risks of granting credit or lending money.
Taxing authorities ( Internal Revenue Service) __ Want to know whether the company complies with tax laws.
Regulatory agencies ( Securities and Exchange Commission) __  Want to know whether the company is operating within prescribed rules.
Customers _ Are interested in whether a company like General Motors will continue to honor product warranties and support its product lines.
Labor unions __ Want to know whether the owners have the ability to pay increased wages and benefits.