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type of business. This business classifies with small type, medium type and large type of organization like corporation. Success of a business largely depends on the proper management of accounting. Because it is accounting for which a company can achieve or attain its goals and objectives since it is the most important tool for proper decision making of the organization. Besides, a business uses inventory accounting to track in inflow and outflow of merchandise intended for sale. This tool assists companies in identifying purchase and sale prices when making vendor selection and procurement decisions. INTRODUCTION Management accounting or managerial accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions. In contrast to financial accountancy information, management accounting information is: I. II. III. IV. V. primarily forward-looking, instead of historical; model based with a degree of abstraction to support decision making generically, instead of case based; designed and intended for use by managers within the organization, instead of being intended for use by shareholders, creditors, and public regulators; usually confidential and used by management, instead of publicly reported; computed by reference to the needs of managers, often using management information systems, instead of by reference to general financial accounting standards.
Management Accounting: a tool of decision making Management accounting is a business process that helps senior corporate leaders appraise a firm's financial robustness and profit potential. This business method also allows top managers to prepare a corporation's financial statements in accordance
with U.S. generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS). Accounting is the backbone of every business. By calculating, recording and analyzing its financial information, an organization is able to gain a clear picture of its current fiscal position. In addition, this data allows the senior management team to make short- and long-term decisions that critically affects operation and bottom line. Businesses use varied accounting tools when making these decisions. The Institute of Certified Management Accountants(ICMA), states "A management accountant applies his or her professional knowledge and skill in the preparation and presentation of financial and other decision oriented information in such a way as to assist management in the formulation of policies and in the planning and control of the operation of the undertaking". Management Accountants therefore are seen as the "value-creators" amongst the accountants. They are much more interested in forward looking and taking decisions that will affect the future of the organization, than in the historical recording and compliance (score keeping) aspects of the profession. Management accounting knowledge and experience can therefore be obtained from varied fields and functions within an organization, such as information management, treasury, efficiency auditing, marketing, valuation, pricing, logistics, etc. Here is a short description about some key factors of any kind of organization where management accounting plays a very important role.
Budgeting Budgeting is an important mechanism in an organization's operating activities, either at a business firm or a non-profit entity. This mechanism helps department heads and segment managers evaluate expense limits that top leadership sets and plan activities and transactions accordingly. Budgeting is also a pivotal tool in managing a firm's cash levels, such as liquidity ratios, because the company may be unable to operate in the short term if it does not have sufficient funds. A corporate liquidity ratio equals current assets minus inventories over current liabilities. It indicates a company's ability to repay short-term loans.
Cash Flow Analysis Cash flow analysis helps senior management evaluate a company's ability to generate cash from activities. It also indicates sources of projects in which a firm invests funds. Cash flow analysis usually relates to cash flows from operating activities, cash flows from investing activities and cash flows from financing activities. Cash flows from operating activities include vendor payments, salaries and other
administrative expenses. Cash flows from investing activities relate to investments that a corporation makes during a period. Cash flows from financing activities indicates funding transactions such as stock and bond sales on securities exchanges.
Cost Variance Analysis Cost variance analysis is a tool that helps leadership assess differences between budgeted costs and actual expenses. Department heads and segment managers focus on variance analysis because high percentages of "overage" indicate inadequacy of cost control systems. In management accounting parlance, "overage" means actual costs exceeding planned or budgeted amounts. Segment chiefs generally establish adequate and functional controls, procedures and guidelines to limit overages in operations. A control is a set of policies that a segment manager puts into place to prevent losses and overages resulting from fraud, technological breakdowns, error and carelessness.
Ledger Reporting Ledger reporting is an essential process in management accounting mechanisms because it helps corporate leaders gauge a firm's financial picture. An organization's management generally requires a full set of financial statements that conform to IFRS, GAAP and Securities and Exchange Commission (SEC) rules. A full set of accounting reports includes balance sheet (otherwise known as statement of financial position), statement of profit and loss (P&L or statement of income), statement of cash flows and statement of retained earnings (also called statement of equity). Financial Statements A financial statement is a snapshot of a businesss current financial status. The management team of every business uses this accounting tool to review its monetary status. In addition, some organizations, such as publicly traded corporations and those regulated by the Securities and Exchange Commission, are required to publicly report them by law. A balance sheet is the most comprehensive type of financial statement. It includes each of a companys assets, including cash, investment accounts, inventory and real estate holdings. It also indicates a companys liabilities, such as rent, lines of credit, taxes and other debts. Assets and liabilities are calculated to determine the companys worth. An income statement documents a companys income over a given period. This revenue is calculated with expenses to determine how much money the company has earned or lost. Alternatively, cash-flow statements specifically highlight cash as it flows in and out of the organization Inventory Accounting
A business implements this tool in ways uniquely suited to the companys operational model. First-in, first-out or FIFO is a method that recognizes that the first inventory purchased is the first to be sold. Companies that sell perishable items commonly use FIFO. Alternatively, Last-in, first-out or LIFO indicates that the last inventory purchased is the first sold. This is used by companies that sell merchandise that does not expire. The specific indication inventory accounting tool, often used in retail companies, recognizes the specific purchase price of items that have a fluctuating sale price. The weighted average inventory accounting tool determines a median cost of all inventory as a hole. Firms that maintain vast quantities of similar inventory, such as energy companies, often use this approach. Managerial Accounting Businesses use managerial accounting when making business-critical decisions, such as making budget cuts, hiring or eliminating staff and expanding or limiting product lines. This tool is a collection of reports compiled by the heads of each business unit. These documents are then reviewed by the senior management team, who then make decisions that affect the company as a whole. Traditional versus Innovative practice Within the area of Management Accounting there are almost an infinite number of tools, methods, techniques and approaches floating around. The distinction between traditional and innovative accounting practices is perhaps best illustrated with the visual timeline (see sidebar) of managerial costing approaches presented at the Institute of Management Accountants 2011 Annual Conference. Traditional Standard Costing (TSC), used in Cost Accounting dates back to the 1920s and is a central method in management accounting practiced today because it is used for financial statement reporting for the valuation of Income Statement and Balance Sheet line items such as Cost of Goods Sold (COGS) and Inventory valuation. Traditional Standard Costing must comply with generally accepted accounting principles (GAAP US) and actually aligns itself more with answering Financial Accounting requirements rather than providing solutions for management accountants. Traditional approaches limit themselves by defining cost behavior only in terms of production or sales volume. In the late 1980s, accounting practitioners and educators were heavily criticized on the grounds that management accounting practices (and, even more so, the curriculum taught to accounting students) had changed little over the preceding 60 years, despite radical changes in the business environment. In 1993, the Accounting Education Change Commission Statement Number 4[2] calls for faculty members to come down from their ivory towers and expand their knowledge about the actual practice of accounting in the workplace.[3] Professional accounting institutes, perhaps
fearing that management accountants would increasingly be seen as superfluous in business organizations, subsequently devoted considerable resources to the development of a more innovative skills set for management accountants. Variance analysis, which is a systematic approach to the comparison of the actual and budgeted costs of the raw materials and labor used during a production period. While some form of variance analysis is still used by most manufacturing firms, it nowadays tends to be used in conjunction with innovative techniques such as life cycle cost analysis and activity-based costing, which are designed with specific aspects of the modern business environment in mind. Life-cycle costing recognizes that managers ability to influence the cost of manufacturing a product is at its greatest when the product is still at the design stage of its product life-cycle (i.e., before the design has been finalized and production commenced), since small changes to the product design may lead to significant savings in the cost of manufacturing the products. Activity-based costing (ABC) recognizes that, in modern factories, most manufacturing costs are determined by the amount of activities (e.g., the number of production runs per month, and the amount of production equipment idle time) and that the key to effective cost control is therefore optimizing the efficiency of these activities. Both lifecycle costing and activity-based costing recognize that, in the typical modern factory, the avoidance of disruptive events (such as machine breakdowns and quality control failures) is of far greater importance than (for example) reducing the costs of raw materials. Activity-based costing also deemphasizes direct labor as a cost driver and concentrates instead on activities that drive costs, As the provision of a service or the production of a product component. Other approaches that can be viewed as innovative to the U.S. is the German approach, Grenzplankostenrechnung (GPK). Although it has been in practiced in Europe for more than 50 years, neither GPK nor the proper treatment of 'unused capacity is widely practiced here in the U.S. Thus GPK and the concept of unused capacity is slowing become more recognized in America, and "could easily be considered 'advanced' by U.S. standards".[1] One of the more innovative accounting practices available today is Resource consumption accounting (RCA). RCA has been recognized by the International Federation of Accountants (IFAC) as a sophisticated approach at the upper levels of the continuum of costing techniques[4] because it provides the ability to derive costs directly from operational resource data or to isolate and measure unused capacity costs. RCA was derived by taking the best costing characteristics of the German management accounting approach Grenzplankostenrechnung (GPK), and combining the use of activity-based drivers when needed, such as those used in Activity-based costing. With the RCA approach, resources and their costs are considered as foundational to robust cost modeling and managerial decision support, because an organizations costs and revenues are all a function of the resources and the individual capacities that produce them.
CONCLUSION
Decision making can be regarded as an outcome of mental processes leading to the selection of a course of action among several alternatives. Every decision making process produces a final choice. The output can be an action or an opinion of choice. It may be noted that every decision involves a certain degree of risk. Very few decisions are made with absolute certainty. So a good decision would be to choose a solution with the highest probability of success and in accordance with the goals, desires, lifestyle and values etc. From the above discussion it can be concluded that managerial accounting and decision making are closely related to each other and it is a tool that is the most important in every time of business. From small type business to large corporation managerial accounting plays a vital in case of proper decision making in order to achieve a companys goals and objective. REFERENCES http://hafeezrm.hubpages.com/hub/Managerial-Accounting-Decision-Making-RelevantCosts-Benefits http://smallbusiness.chron.com/accounting-tools-business-decision-making-2678.html http://www.sciencedirect.com/science/article/pii/S0010880489800795 http://www.ehow.com/list_6717493_managerial-accounting-tools-businessdecision_making.html