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Understanding Management Accounting
Management Accounting is an accounting system whose core purpose is to submit financial reports for the needs of internal parties in a company, such as financial managers, production managers, marketing managers, and other internal parties.
This information is very important as a reference for making decisions for the company’s future based on past data from financial reports.
Management Accounting Objectives
The purpose of management accounting is to submit financial reports to certain companies for the purposes of internal parties.
In order to carry out the management process which includes management planning, decision making, controlling, organizing, and evaluating business processes and strategies for the company.
So that it can help them in taking a competitive policy by collecting then processing and finally communicating.
For example, to estimate future losses or profits, whether the company will continue to run or merge with other companies.
Management Accounting Function
1. As a tool to analyze in Decision Making
Management accounting is an analytical tool whose output is qualitative data and quantitative data. This can be used as a reference for management in making decisions. Decisions related to operational activities or special decisions such as investment.
2. As an Information System for External Parties
According to CIMA (Chartered Institute of Management Accountants), management accounting is not only designed to be used by internal parties.
Management accounting is also used for the purposes of external parties or stakeholders in the company, for example shareholders,
financial institutions, governments, and other parties who have an interest in the company.
3. As Financial Information and Relevant Data Sources
Management accounting must prepare information related to company finances and become a concrete source of data.
This is very important to be presented as a basis for planning activities or company operations from each field.
4. Source of Information for Accountability of each Level of Management
Each section or level of a management has responsibilities that must be reported. Management accounting is a solution source of information and accountability reports for each division.
Reports can be used for inter-divisional interests in planning their work for each section according to the overall condition of the company.
5. Company Performance Measuring and Monitoring Tools
Management accounting is not only separated from the function of monitoring the company’s performance. Financial statements issued from management accounting
describe past data that can be used as a performance evaluation tool, for all divisions or for the benefit of the company as a whole.
6. Coordination for Company activities
The existence of management accounting requires that one division to another in the company be related and related so that their operational activities do not collide with each other or run only according to the interests of each division.
Scope of Management Accounting
Management accounting is one of the types of accounting that processes financial data and provides information to managers of an organization or company so that planning and decision making, and monitoring can run well and smoothly.
Certain accounting information must be in accordance with the needs of company management so that it can be implemented properly.
The process of a management accounting in accordance with accounting principles is from identification, measurement, accumulation, analysis, prepare, interpretation,
And notification of financial information to the company’s management for planning, evaluating, and monitoring the company’s operations.
Accounting as an information system has a strategic task in financial planning related to the analysis of costs that exist at a certain time.
Management accounting is needed to assess the economic and financial feasibility of an investment when the company will make an investment.
This is important to avoid improper investment because it is part of the waste and is detrimental to the company.
Valuation of an investment must prioritize certain factors, namely the amount of discount, inflation rate, level of risk, uncertainty of country risk and political risk, and source of capital.
Management Accounting Example
Financial managers generally need information regarding the recording of each financial transaction and company activity that requires funding such as working capital,
The cost burden of the amount of working capital required by the company, the rate of return on capital, various financial ratios, assets in an accounting, business transactions in the company, and others.
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