Nobody is quite sure where accounting, in its narrowest sense, leaves off and where management accounting in the active sense begins. First, we ought to argue that any accounting that is not helpful in some way should not be pursued. In all of its phases, “useful” accounting should be useful to some sort of management, whether it be the officers and sub-officers of the company, the investors and potential investors, the creditors and potential creditors, or one or more government agencies. Each of these users of accounting data manages its relationships with the enterprise, in part at least, on the basis of accounting reports, all of which thereby qualify as management serving.
For the purposes of this blog we are limiting management to insiders only who include the whole spectrum of persons on the corporate organization chart who have the responsibility for reaching decisions that will influence costs and revenues or at least be influenced by them. We’ll define as management accounting: “the accumulation, classification, storage reporting, and interpreting of cost and revenue date to provide management with the optimum amount of useful information to help in the formulation of decisions”.
Certain management accounting procedures are continuous in nature. The accounting documents and ledger accounts are organized so that the data that is accumulated is reported continuously without any special call for help by the management who will receive the information. We’ll consider these very briefly under the headings of responsibility of accounting, standard costing, and direct costing. We will look at these three types of accounting this week on the blog.