Managerial Accounting Notes
Chapter 1: Managerial Accounting and Business Environment
The Role of the Management Accountant in Value Creation
Managerial Accounting is concerned with providing information to managers—
that is, people inside an organization who direct and control its operations. In
contrast, Financial Accounting is concerned with providing information to
shareholders, creditors, and others who are outside an organization.
Managerial accounting provides data that help organizations run more efficiently.
Financial accounting provides the scorecard by which a company’s past
performance is judged.
The Work of Managers and need for Managerial Accounting Information
Managers carry our three major activities;
Planning; involves selecting a course of actions and specifying how the
action will be implemented.
Directing and Motivating; involve mobilizing people to carry out plans
and run routine operations.
Controlling; involves ensuring that the plan is actually carried out and is
appropriately modified as circumstances change.
A Strategy is a “game plan” that enables a company to attract and retain customers
by distinguishing itself from competitors.
An important part of planning is to identify alternatives and then to select from
among the alternatives the one that best meets the organization’s objectives.
All-important alternatives considered by management in the planning process have
some effect on revenues or costs, and management accounting data are essential in
estimating those effects.
The plans of management are often expressed formally in budgets, budgeting is a
part of the planning process. Budgets are usually prepared under the direction of
the controller, who is the manager in charge of the Accounting Department. Directing and Motivating
In addition to planning for the future, managers must oversee day-to-day activities
and keep the organization functioning smoothly. This requires motivating and
Managers assign tasks to employees, arbitrate disputes, answer questions solve on-
the-spot problems, and make many small decisions that affect customers and
In the control function, managers seek to ensure that the plan is being followed.
Feedback, which signals whether operations are on track, is the key to effective
control. In sophisticated organizations, this feedback is provided by detailed
One of these reports is called a performance report. Performance reports suggest
where operations are not proceeding as planned and where some parts of the
organization may require additional attention.
The Planning and Control Cycle
The planning and control cycle, illustrates the smooth flow of management
activities from planning through directing and motivating, controlling, and then
back to planning again.