NOTES CHAPTER 1 - student

Accounting can be defined as the classification and

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Unformatted text preview: ting can be defined as: “The classification and recording of monetary transactions of an entity in accordance with established concepts, principles, accounting standards and legal requirements and presentation of a view of those transactions during and at the end of an accounting period”. Financial accounting is concerned with: • The analysis, classification and historical recording of transactions; • The ascertainment of profit or loss of the business; and • The position of assets and liabilities of the business. Cost accounting, on the other hand, will give a detailed indication of the business performance. The cost accountant will use the information from the financial accounting system and would also gather information on the internal operations of the business. He will ascertain costs and will analyze costs and profits by cost centres, products, jobs or processes. He will make use of both monetary and non-monetary data. Costing is also concerned with future activity and, therefore, future costs. Actual performance will be compared against expected performance. COSTING & MANAGEMENT ACCOUNTING Costing provides cost information and management accounting uses this information to formulate policies and to plan and control. Cost accounting is the foundation for the development of management accounting. The planning and control function of cost accounting can be considered as the function of management accounting. The planning and control function of cost accounting can be considered as the function of management accounting. The two are very closely linked. Cost accounting and management accounting together constitute the internal information system of an organization. Management accounting is a method of providing information to management in order to assist in planning and control activities. 3 The definition of management accounting is: “An integral part of management concerned with identifying, presenting and interpreting information used for: a) Formulating strategy b) Planning and controlling activities c) Decision taking d) Optimising the use of resources e) Disclosure to shareholders and others external to the entity f) Disclosure to employees g) Safeguarding assets The above involves participation in management to ensure that there is effective: a) Formulation of plans to meet objectives (strategic planning); b) Formulation of short term operation plans (budgeting/profit planning); c) Acquisition and use of finance (financial management) and recording of transactions (financial accounting and cost accounting); d) Communication of financial and operating information; e) Corrective action to bring plans and results into line (financial control); f) Reviewing and reporting on systems and operations (internal audit, management audit). It should be remembered that the three functions of costs, financial and management accounting are interrelated and interdependent. Therefore, it is difficult to draw a clear distinction between the t...
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This document was uploaded on 09/30/2013.

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