ROLE OF MANAGEMENT ACCOUNTING SYSTEM
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ROLE OF MANAGEMENT ACCOUNTING SYSTEM
Chapter one
INTRODUCTION
All components of accounting arose out of practical necessity. People have been concerned about expenses ever before money replaced barter. Furthermore, since trading began, businesses have recognised the importance of cost.
This could not be otherwise because it is widely understood that profit equals sales minus costs. Management accounting provides strategies for generating information, such as the cost and profitability of a project based on its previous plan.
Management accounting in all types of corporate organisations is concerned with providing or supplying useful information to individuals within the firm to help them make better decisions.
It is involved in both conventional and unconventional activities, necessitating the availability of adequate and relevant information in decision-making scenarios.
Furthermore, management accounting necessitates the provision and comprehension of economic information qualities, as well as the process of recognising, measuring, and communicating such information.
Management accounting is the application of professional skills and expertise in cost analysis or cost accounting to managerial challenges and decision-making processes.
In this regard, the management accountant seeks to generate both routine and non-routine useful financial information that is dedicated primarily to certain management functions, particularly planning and control.
Information can be obtained by either direct observation or communication. Managers often get knowledge through communication; yet, it is impossible for them to monitor all of the actions occurring under their supervision.
In effect, management accounting should focus on providing meaningful information that is useful to the recipient. For example, if a manager is evaluating two different courses of action, both of which involve the use of current machinery, the flows (payment) for the machinery will be the same for both options.
This information is irrelevant to the decision because the cash flow remains constant for both possibilities. Only cash flows that differ between the distinct alternatives provide meaningful management accounting information for the choice.
Relevant is focused on management accounting; if information is not relevant to its purpose, it has no value. Thus, it is critical that there be a close relationship between management accounting and all levels of management so that management can be familiar with the firm’s operations and determine what is relevant in a marines that more accurately reflects the needs, understanding, and receptiveness of specific users.
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