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Management Accounting Demystified

Management Accounting Demystified

3.5 2
by Heather Berry

Learn the essentials of management accounting in a flash!

This hands-on self-teaching guide covers the fundamentals of management accounting,
including cost accounting, how to develop and use information for costing products and services,
decision making, operational budgeting,
performance evaluation, and other important subjects and provides an update


Learn the essentials of management accounting in a flash!

This hands-on self-teaching guide covers the fundamentals of management accounting,
including cost accounting, how to develop and use information for costing products and services,
decision making, operational budgeting,
performance evaluation, and other important subjects and provides an update on recent developments in the field. You will learn the key aspects of management accounting as they apply to both for-profit companies and nonprofits.

Product Details

McGraw-Hill Companies, The
Publication date:
Product dimensions:
7.50(w) x 9.25(h) x 0.94(d)

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Read an Excerpt


By Leonard Eugene Berry

The McGraw-Hill Companies, Inc.

Copyright © 2006The McGraw-Hill Companies
All rights reserved.
ISBN: 978-0-07-145961-7



What Is Management Accounting?

Information for Decision Making

Every day, all around the world, managers in companies of all sizes make important decisions that will affect the ultimate success of their businesses. Often these managers look to the management accountant to provide the necessary information they need to make these decisions. The decisions managers are faced with relate to the following categories:

Strategic Analysis Information

Strategy involves scanning the business environment (potential markets, customers, products/services, and competitors) for opportunities and making decisions relating to:

• What kind of business should the company engage in?

• What products or services should the company produce and/or sell?

• What markets should the company compete in?

• Should the company merge or acquire another company?

• How much should be spent on research and development over the long run?

• What capital assets should be acquired and how will they be financed?

Strategic analysis involves developing measures and a feedback system to evaluate the success of the strategies developed by the company.

The management accountant assists management in setting strategic planning and analysis by giving input on projected sales and costs of various strategic opportunities, creating benchmarks to evaluate strategies, assisting on due diligence of various strategic alternatives, and providing input on the effectiveness of business policies.

Planning Information

Planning involves long- and short-term decisions about the future course of the business.

Long-term planning involves developing the broad steps to achieve the business's strategic growth goals. Long-term planning and strategic planning are very closely linked and may be used interchangeably. The long-range planning process involves deciding on such things as what capital assets and human resources are required to meet the strategic goals of the company; how these resources will be financed; and what processes will be employed to meet the customers' satisfaction effectively and efficiently.

Short-term planning involves breaking down the long-range plans into smaller steps for the coming year or the coming quarter. This will require such decisions as setting prices for the coming year, estimating costs, and preparing a master budget. Management accountants assist management in planning by providing analysis of long-term investments, financial projections for long-term budgets, and master budgets for the coming period.

Organizing and Directing Information

To implement plans and operations, management must be organized to achieve the business goals effectively and efficiently. This involves such things as dividing responsibilities, creating an organization structure, and setting up an information system that provides information for all parts of the organization. In addition, management must oversee continuing operations, and keep the organization running smoothly. This requires motivating, directing, and communicating with all personnel within the organization. In a word, it has to do with leadership by top and middle managers.

The management accountant assists management in organizing and directing by providing input on organizational structure, information systems, internal controls, and compensation plans that motivate managers to achieve company goals.

Performance Evaluation Information

Evaluating Business Unit Performance

Each major business unit should be evaluated to determine whether it is competing effectively in the market to which it has been assigned. This evaluation involves:

• Using business unit financial reports to evaluate current operations; that is, is that unit profitable?

• Assessing whether a business unit is making a satisfactory return on investment.

• Deciding whether the business should close a business unit; for example, should Bank of America close a branch?

Evaluating Managers' Performance

Managerial evaluation involves evaluating the personal performance of a segment manager, rather than evaluating the unit itself. Evaluating the manager involves:

• Reviewing cost reports or budget reports to determine whether the manager met the assigned budget.

• Using specialized reporting to evaluate the manager's effectiveness in carrying out the strategy goals. Typical reports involve special measurement techniques such as Balanced Score Card, Return on Investment, Residual Income, and Economic Value Added (EVA) discussed in Chapter 14.

• Developing information to structure compensation plans.

The management accountant's role in organizational and management evaluation is critical since he or she will provide the key measures of performance, financial reports of responsibility center performance, reports of variance from budgets and standards, and other key pieces of information that help evaluate the success of the business.

The Key Accounting and Finance Players in a Large Business

Who provides the information for making the major decisions discussed above? The key players who are responsible for this role are:

• The Chief Financial Officer (CFO), the senior executive who is responsible for all the financing and accounting functions of the business.

• The Controller, the chief accounting officer of the business responsible for all accounting functions in the corporation. The Controller normally reports to the CFO. In some businesses, the title "Comptroller" is used instead of "Controller." When used in a corporation, it has the same meaning as "Controller." The information generated by the Controller includes financial information for both internal managers and external users of financial statements. Persons providing the information for internal users making the decisions discussed in the previous section, and who report to the Controller, are known as management accountants.

• The Treasurer, responsible for cash and other financial resources of the company, such as maintaining bank relations, managing investments, handling cash receipts and similar operations. The Treasurer normally reports to the CFO.

• The Internal Auditor, who performs financial, compliance, and management audits for internal management. The InternalAuditor provides independent appraisal of the organization's internal control system. Often, the Internal Auditor performs consulting services to internal management, and can report to the board of directors, the CEO, or the CFO, depending on the policy set by the board of directors or the CEO. The Internal Auditor may be a CPA and/or a Certified Internal Auditor (CIA). To be certified, candidates must pass a written examination, possess a specified level of experience, and hold a college degree. A CIA is certified by the Institute of Internal Auditors.

Changing Roles of the Controller and Management Accountant

The roles of the Controller and the management accountant have changed dramatically during the past decade. The Controller and modern management accountants go beyond the role of just providing the numbers for management, often becoming directly involved in the decision making process as consultants to management. Moreover, many Controllers are adding value to t

Excerpted from MANAGEMENT ACCOUNTING DEMYSTIFIED by Leonard Eugene Berry. Copyright © 2006 by The McGraw-Hill Companies. Excerpted by permission of The McGraw-Hill Companies, Inc..
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Meet the Author

Leonard Eugene Berry, Ph.D., C.I.A., is Professor Emeritus and Director Emeritus in the School of Accountancy at Georgia State University. He is also a retired C.P.A.

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