Management Accounting

Management accounting over arches all types of services through which those in charge of accounting, its maintenance and monitoring can help the organisation (or the individual employer) in policy formulation, decision taking, management of resources, improving effectiveness - in short, progressing the financial health of the organisation. 

According to the American Accounting Association (AAA), "Management Accounting is the application of appropriate techniques and concepts in processing historical and projected economic data of an entity to assist management in establishing plans for reasonable economic objectives and in the making of rational decisions with a view toward these objectives". 

It is worthwhile to note the use of the set of words/phrases - appropriate, historical and projected, economic, reasonable, rational decisions, with a view toward. 

Extraneous and irrelevant considerations are excluded through the "view" being emphasized. Maintaining public image, ethics, legal scruples etc. are highlighted through "appropriate",  "reasonable",  and "rational". Continuity of the business is implicit in "historical and projected". Time value of money is underscored by "economic". That work shall proceed till a logical phase is indicated by "decision". Though it may look awkward, even discontinuance or suspension of the contract and even consciously venturing to take on sunk costs and bad debts too are likely candidate decisions. 

Additionally, processing towards assisting and keeping things in view indicates what generally goes by the "control" function and "establishing  plans . . ." indicates what further generally goes by the "planning"  function - the two "functions"  through which (Management) Accounting mustily assist management. In this aspect, management accounting as a discipline of study and'also practice, shares these two "functions" of "control" and "planning"  with other disciplines of "management". 

Moreover, the above definition is meant to imply, through adoption of the terminology "appropriate techniques and concepts" and "reasonable economic objectives",  that the collection and utilisation of accounting information should relate not only to the financial and economic information but also to the environmental factors, especially also political and social. This will be the plenary theme of management accounting. 

In AAA definition, the part "to assist management in with a view toward these objectives"  succinctly bears on what distinguishes "management  accounting"  from "financial  accounting". Management accounting is for the exclusive use of the management of a firm; outsiders do not need such accounts and (may) have no access to them. So, there is scope for flexibility in its preparation. Specific needs will go with "appropriately differing techniques"  and presentation formats. The criterion for inclusion of any information (or data for that matter) is the perceived/intended utility - as conveyed by the phrase "with a view toward these objectives". 

Whereas preparation of financial accounting with its three end products, i.e. balance sheet, profit and loss account, and statement of changes of financial position, is a legal and mandatory obligation of any firm (or individual in business), management accounting is entirely optional. Perhaps, herein lies the general indifference in the profession; not only so, even the vehement denial by a sizable section of the owner community towards the concepts of "captive", "self financing contracts", "feasible Zones of scheduling", etc. the concepts that on one hand distinguish to varying degrees of industrial production from construction activity and on the other extreme are crucial to the very solvency of the contracting firm.