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Type: Management Downloads:105 Pages: 3 Words: 4000


The accounting process in concerned with the process of managing, classifying, interpreting, analysing and summarising the business transaction in a format that is understandable to all the stakeholders who have interest in the activities of the business. The accounting process is further classified into various types such as management accounting, financial accounting etc. Here we are going to talk about management accounting. Management accounting is the process of summarising the financial accounts of the company in such a manner that it becomes understandable to the internal management of the company. The management accounting is done in quantitative form rather that qualitative form, it involves the past as well as the future data so that the managers can make decisions regarding the future activities of the business. The main motive behind management accounting is to provide internal management with information that will enable them to take decision , formulate policies, execution of control and bring effectiveness in the business (Albu and Albu, 2012).

Task 1

P1: Management Accounting and its essential requirements

Management accounting is the process of summarising the accounting informations in a manner that is understandable and easily interpreted by the internal management of the business.

The informations that are used in management accounting are systematic and they are interpreted and evaluated by using different formulas and tools. It is very beneficial in providing services because  it increases productivity and and increase the opportunities for future profitability. Management accounting helps in making decision that are very profitable for the department and all the others are rejected. In the today's complex business situations management accounting plays an significant role and is an integral part and effective tool in the decision making. The importance of management accounting are discussed below:

Increases efficiency: Management accounting process increases efficiency in the business by providing essential information in a quantitative format to the internal management of business which helps them in making policies and future decisions regarding the activities of the business., which in turn increases the efficiency of the business.

Performance measurement: Management accounting enables the companies to measure the performances of the employees and departments by using techniques such as standard costing, job costing etc. which is formulated by them using management accounting.

Effective management control: The more vital function of this form of accounting is increasing the overall efficiency by effectively managing the control system. This help the organisation in achieving the targeted objectives in an efficient and timely manner (Alleyne and Weekes-Marshall,2011).

Management accounting

Financial accounting

The Management accounting is majorly used in the decision making process of top management of the company. It does not have any  reporting standards.

Financial accounting is used by all the stakeholders of the business that is directly or indirectly interested in the business. This accounting has certain pre-specified standards.

Management accounting uses past and historical data as well as future data to take decisions regarding policies of the business.

Financial accounting only uses past and current economic events in its statements as it is used by the outsiders of the organisations.


The management accounting is done for the  time duration that is defined by the internal management.

The financial accounting is generally for the accounting and financial years.

The information that is contained in the management accounting statements is audited by the internal auditors.

The information in the published financial statements of the company is supervised by the external auditors appointed by the company.

Different accounting systems:

Price optimisation: This system of accounting identifies the perception of the various customers regarding the prices of the different products that are offered by the company and that the changes in their price is optimum. The informations that are used in the optimisation of prices takes into consideration various factors such as operating cost, stock value and historical values and sales. For solving this purpose, the companies use mathematical measures to examine the reactions of the customer regarding the product features and qualities.

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