The Function of Management Accounting

Modern business environments are increasingly competitive and dynamic. Global competitors in advertising, public relations, e-commerce and demand-based supply chain management dominate business. Jessup need to secure their market position and enhance their market share. It is more important to develop coherent and consistent business strategies and to utilize management accounting tools to support strategic cost control, prices strategic, trends, planning and control etc.

Just like other small to medium size firms, Jessup is adopting a traditional financial accounting system currently. This system provides semi-annually and annually financial reports for management review their business financial situation. These reports focus on the whole business and concerned with the provision of historical information to external parties such as creditors, stockholders and regulators, who are interested in and have a financial investment or stake in a company.

Management accounting on the other hand is more like a management tool for strategic planning. It is not concerned with reporting but collecting data to be used by the management; in planning, organizing, staffing, directing and for control purposes.

Drury, C. (2009) states that “Management accounting differs from financial accounting in several distinct ways. Management accounting is concerned with the provision of information to internal users to help them make better decisions and improve the efficiency and effectiveness of operations”.

Even both branches often use same financial data to calculate figures, the requirements and objectives of using them are very different. Financial accounting generates information (e.g. financial report) to be used by external parties and is mandatory. The information has to be prepared periodically in specific regulatory formats so as to reflect accurate financial data of the organization as a whole.

In contrast, management accounting is specifically prepared for internal users only. It could be prepared for specific product, teams, departments or even the whole company. It does not focus merely on monetary data but also provide details about other important aspects like most up to date data related to sales and inventory which are useful to decision making. Moreover, management accounting is more often talking about future, budgets and forecasting events. Management team would be more responsive and take swift action if the actual result was deviated from the expectation.

Management accounting is a matter of choice. There are no mandatory principles on what data to be included, how the data should be presented and how frequent the data should be prepared in management accounting. They are all subjected to Jessup’s mission, objectives as well as the targets of individual department. Management accounting offers different insight additional information, concepts and tools which are invaluable to managers to make effective decisions.