Meaning and Definition of Management Accounting

Every business is run by a group of managers who must constantly plan for the future, take decisions, and check whether things are going as intended. To do all this well they need information — and a great deal of the information they need is financial. Management accounting is the branch of accounting that gathers, processes and presents accounting and other economic information in a form that helps management to plan, take decisions and control the business.

The name itself explains the idea: it is accounting for management. Financial accounting keeps the books and reports the overall results to the outside world; cost accounting works out what each product or job costs. Management accounting takes the data produced by both of these — and adds outside information where needed — and reshapes it into reports, statements and analyses designed specifically to help managers do their job. It does not follow a fixed statutory format; instead it presents information in whatever way is most useful for the particular decision in hand.

A widely accepted description is that management accounting is the presentation of accounting information in such a way as to assist management in the creation of policy and in the day-to-day operation of an undertaking. In other words, its whole purpose is to convert raw accounting data into useful, decision-ready information for those who run the business.

Key features of management accounting that emerge from this meaning are:

• It is management-oriented — it exists only to serve the internal needs of management, not outsiders.
• It supplies information, not decisions — it provides the facts and analysis; the decision itself is taken by management.
• It draws on many sources — chiefly financial accounting and cost accounting, but also statistics, economics and other data, financial and non-financial alike.
• It is future-oriented — it is concerned mainly with planning and forecasting the future, not merely recording the past.
• It has no fixed format — reports are prepared in whatever form best suits the purpose, and there is no legal compulsion about their shape or frequency.
• It is selective — it presents only the information relevant to the matter in hand, not every transaction of the business.