INTRODUCTION TO MANAGEMENT ACCOUNTING
Management accounting is the provision of
information for internal users in a firm.
The three broad objectives of management
accounting are planning, controlling, and de-
The users of management accounting in-
formation are typically managers and other
employees of a firm. Management account-
ing information is typically not provided to
outsiders but may be in selected cases. For
example, a bank may require budgeting in-
formation for the next few years before
agreeing to grant a loan.
A management accounting information sys-
tem typically provides both financial and
nonfinancial information. For example, finan-
cial information on cost of production is
tracked. Other information, such as the num-
ber of warranty returns, may also be tracked
by the management information system.
Controlling is sometimes called performance
evaluation. It involves comparing the expec-
ted outcome with the actual outcome to see
what differences, if any, exist.
Planning occurs first. It requires setting ob-
jectives and identifying the means of achiev-
ing those objectives. Then, the results of the
plan are compared with the plan, which is
called controlling. Clearly, it is also feed-
back, in that any impediments or unexpec-
ted occurrences are noted. This feedback is
then used to develop the plan for the next
Management accounting is internally fo-
cused, does not follow mandatory rules,
keeps track of both financial and nonfinan-
cial information, emphasizes the future, and
relies on a broad range of disciplines. Finan-
cial accounting, on the other hand, is extern-
ally focused, follows externally imposed
rules (such as GAAP), has a historical ori-
entation, and provides information about the
company as a whole.
Huge improvements in technology, trans-
portation, and communication over the past
50 years have changed the world signific-
antly. Management accountants have had to
broaden their focus beyond simple financial
reporting to include the gathering of informa-
tion on all types of costs and of the value of
the product or service to customers. These
broader costs are used in planning and de-
Customer value is the difference between
what a customer pays for a product or ser-
vice and what she or he receives in return.
The focus on customer value forces man-
agement accounting to look at many types
of costs, not simply manufacturing cost.
These may include the price of the good or