MANAGERIAL ACCOUNTING CONCEPTS AND
Managerial accounting is the provision of in-
formation for internal users in a firm.
The three broad objectives of managerial
accounting are planning, controlling, and de-
The users of managerial accounting inform-
ation are typically managers and other em-
ployees of a firm. Managerial accounting in-
formation is typically not provided to out-
siders but may be in selected cases. For ex-
ample, a bank may require budgeting in-
formation for the next few years before
agreeing to grant a loan.
A managerial accounting information system
typically provides both financial and nonfin-
ancial information. For example, financial in-
formation on cost of production is tracked.
Other information, such as the number 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.
Managerial accounting is internally focused,
does not follow mandatory rules, keeps track
of both financial and nonfinancial informa-
tion, emphasizes the future, and relies on a
broad range of disciplines. Financial ac-
counting, on the other hand, is externally fo-
cused, follows externally imposed rules
(such as GAAP), has a historical orientation,
and provides information about the company
as a whole.
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 mana-
gerial accounting to look at many types of
costs, not simply manufacturing cost. These
may include the price of the good or service,
maintenance costs, search costs, learning
costs, and disposal costs.
Today’s management accountant must un-
derstand many functions of the business,
from manufacturing to marketing to distribu-
tion to customer service, in order to provide
appropriate information for managing the
value chain. Increased international trade
means that the management accountant
must be familiar not only with business prac-
tices and laws in his or her own country but
also in the countries with which his or her
The value chain is the set of activities re-
quired to design, develop, produce, market,
and deliver products and services to cus-
tomers. It is important because it helps the
company to understand its role in serving
customers and to develop strategic compet-
As the environment in which most busi-
nesses operate becomes increasingly com-
plex, so too does the managerial accounting
information that is prepared to measure and
evaluate that environment.
In addition, more
and more diverse stakeholder groups, in-
cluding environmental watchdog organiza-
tions, pension fund groups, and human
rights groups, are demanding and receiving
more types of managerial accounting inform-