Question

In a one- to two-page essay, consider the function of managerial accounting within a firm. Describe the purpose and scope of managerial accounting. Within the analysis explain how managers use the internal financial data to better manage the daily operations of a company.

• Be sure to provide an overview of managerial accounting and differentiate between managerial accounting and financial accounting.
• Conclude your essay with how internal and external stakeholders use financial data from both a financial accounting and managerial accounting perspective.
• Consider how the concept of managerial accounting and a Christian worldview might work together.
• Provide at least one scholarly source.

Answer 1

Scope of Management Accounting:

The main concern of management accounting is to provide necessary quantitative and qualitative information to the management for planning and control. For this purpose it draws out information from accounting as well as non-accounting sources.

Hence, its scope is quite vast and it includes within its fold almost all aspects of business operations. However, the following areas may rightly be pointed out as lying within the scope of management accounting.

i. Financial Accounting:

The major function of management accounting is the rearrangement or modification of data. Financial accounting provides the very basis for such a function. Hence, management accounting cannot obtain full control and coordination of operations without a well-designed financial accounting system.

ii. Cost Accounting:

Planning, decision-making and control are the basic managerial functions. The cost accounting system provides necessary tools such as standard costing, budgetary control, inventory control, marginal costing, and differential costing etc., for carrying out such functions efficiently. Hence, cost accounting is considered a necessary adjunct of management accounting.

iii. Revaluation Accounting:

Revaluation or replacement value accounting is mainly concerned with ensuring that capital is maintained in real terms and profit is calculated on this basis.

A common question is to explain the differences between financial accounting and managerial accounting,

since each one involves a distinctly different career path. In general, financial accounting refers to the aggregation

of accounting information into financial statements, while managerial accounting refers to the internal processes used to account for business transactions.

There are a number of differences between financial and managerial accounting, which fall into the following categories:

Aggregation. Financial accounting reports on the results of an entire business. Managerial accounting almost always reports at a more detailed level, such as profits by product, product line, customer, and geographic region.

Efficiency. Financial accounting reports on the profitability (and therefore the efficiency) of a business, whereas managerial accounting reports on specifically what is causing problems and how to fix them.

Proven information. Financial accounting requires that records be kept with considerable precision, which is needed to prove that the financial statements are correct. Managerial accounting frequently deals with estimates, rather than proven and verifiable facts.

Reporting focus. Financial accounting is oriented toward the creation of financial statements, which are distributed both within and outside of a company. Managerial accounting is more concerned with operational reports, which are only distributed within a company.

Standards. Financial accounting must comply with various accounting standards, whereas managerial accounting does not have to comply with any standards when information is compiled for internal consumption.

Systems. Financial accounting pays no attention to the overall system that a company has for generating a profit, only its outcome. Conversely, managerial accounting is interested in the location of bottleneck operations, and the various ways to enhance profits by resolving bottleneck issues.