Why we need MA?
What is MA?
MA = It is an accounting system that provide information to management for internal use.
What Managers do to run the business?
Managers Tasks to Run the Business
Plan for the future
No planning for the future => the company will fail => will go out its market / environment
Control Compare actual results with originally thought (budgeted) and take corrective actions.
No effective controls => the company will fail
For Planning and Control, company must have info on regular basis weekly, monthly, quarterly, annually etc
Decision Making done on ad hoc basis (not on regular basis) as and when required
e.g.
> Invest in a business (buy another company) => for this see revenues and cost associated to it.
> Launch a new product (or Discontinue a new product) -> see associated Cost and revenues.
Uses of MA
1. Planning
2. Control
3. Decision making
Information Required for Planning, control and Decision Making.
DATA AND INFORMATION
Data Unprocessed and raw Facts and figures originally gathered.
Information
Raw Data is made useful,
Give data some context (e.g. compare it with something else),
Give data some form for decision making.
Qualities of Good Information
ACCURATE Acronym
Accurate
|
Cost effective
Understandable / User friendly
Relevant
Adaptable
Timely
Easy to use
There should be balance between all qualities of information. To make one fully may lose the other.
So Information is used for Decision making.
Different Types of Information
LEVELS OF MANAGEMENT
Operational | Tactical | Strategic |
Junior Management | Middle level of management | Highest level of management |
Short term | Midterm | Long term |
day, week or month | month to a year | beyond a year |
Control >> no planning >> just follow | Planning and Control | Planning >> looking into future >> course of business |
MA studies tactical decisions (month to a year).
BUSINESS CENTERS (Grouping of ---)
Separating the Business into Smaller Elements / chunks and Control Centres
Cost Centres | Revenue Centres |
logical grouping of costs which allow us to better control those costs | logical grouping of revenues which allow us to better control those revenues |
Managed by Junior Managers | Managed by Junior Managers |
Control the cost to predetermined level | Control the revenue to predetermined level |
Breaking the cost into appropriate areas | Appropriate areas |
i.e. >> departments (production, marketing etc), >> functions (product line), >> managers (in charge), >> location (a building), >> region (north or south) etc. | i.e. >> product line, >> region, >> mangers (in charge) |
Profit Centre (Costs and Revenues) Divisional Operation => wholly autonomous part of business Managed by more Senior manger Aim is to maximise profit | |
Investment Centre (Cost, Revenues and Investment) Managed by Senior manger Aim is to maximise profit and making investment i.e. >> Capital expenditures | |
Product line = different product that we sell
Management Accounting (MA) | Financial Accounting (FA) |
Internal Use | External Use |
Cost/Benefit If benefits of preparing MAs exceeds its cost | Statutory requirement |
No Rules and Regulations For preparing MAs | Rules and Regulations For preparing FAs |
Sometimes to provide some information to FA, some rules are followed. | |
Financial and Non financial terms | Financial terms (in Pounds and Pennies) |
Monthly, Ad hoc basis | Annual basis (may be Quarterly by Larger Companies) |
Detailed (e.g. Unit Cost, break downs of Unit Cost) | Summary |
Look Past and Future (Planning and decision making) | Look at Past |
