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Management Accounting

 

Every day top executives have to make different management decisions, which concern information on the past, present and future of the company in different units – HR, finances, marketing, production, etc. To make the right decision, they have to rely on quantitative and qualitative information. The information they need is not just financial in nature, but it also originates from different sources, including marketing, production, HR and other departments. Along with the company’s internal information, it is also necessary to analyse the impact of the external environment that can significantly affect the development of the company. In order to understand and to use the richness of this information, it is beneficial to create a system of management accounting within the company.  If this tool is set up properly, it will ensure the optimisation of the costs and revenues and the long-term lifetime of the company in the course of optimal use.

 

To date, management accounting has developed into an essential part of the company’s strategy and in addition to the management of the company it also involves other stakeholders (accountants, employees, advisers, etc.). Accountants are no longer just passive distributors of information, they have a proactive role in the process of making day-to-day and strategic decisions. Although management accounting is not exactly the same as financial accounting, these two activities are nevertheless closely linked systems.

 

The objective of management accounting is not the correction of mistakes, but their identification and the discovery of possible solutions. The primary goal is to detect different shortcomings and bottlenecks that need to be further looked into and understood. The system of management accounting has to meet at least five key objectives:

 

1. to provide information required for making different decisions or planning;

2. to help managers in managing and monitoring processes;

3. to motivate the management and staff to act in a results-oriented manner;

4. to assess the performance of the activities, units, managers and employees of the organisation; and

5. to assess the organisation’s competitive power in order to ensure the long-term profitability of the company.

 

In the process of management accounting, accounting data are processed to the format, which allows to maintain similarities and to remove deviations. The main objective is to present data that are useful and accurate. The information collected and processed has to be understandable to different stakeholders who know how to use it and can use it. Otherwise, the result would be insignificant and the company will not get any benefit. The data should be transferred within a limited timeframe; if the results are not delivered in time, this will postpone both the objective and solution.