Management Notes

Reference Notes for Management

Cost Accounting and Management Accounting – Relationship among them | Management Notes

Cost Accounting and Management Accounting

Cost accounting refers to the process of accounting for costs. In accounting, all income and expenses are recorded, and periodic statements and reports are prepared to estimate and control costs. As such, it is the formal mechanism by which the cost of products or services is determined and controlled. The objective of management accounting is to collect, analyze, interpret, and present all the accounting information needed by management. Performance evaluation is closely associated with management control, which involves planning, executing, measuring, and evaluating performance.

The methods of management accounting rely heavily on cost data and other information derived from cost accounting. Because it serves multiple purposes, cost accounting has become virtually indistinguishable from so-called management accounting or internal accounting. Management accounting differs from cost accounting in one important way. Unlike cost accounting, management accounting covers a wider range of activities. While cost accounting focuses primarily on cost data, management accounting also considers revenue into the equation. A management accounting system includes all aspects of financial accounting, cost accounting, and management accounting. A management accounting system does not replace other accounting functions, however. The process of reporting cost, financial, and other relevant data to management in an analytical and informative way involves continuous reporting.

Since management accounting and cost accounting are complementary, we shouldn’t be too concerned with dividing them. The management accountant will be unable to access detailed cost information if there is no cost accounting system in place, and his role will become less important. Management accountants, on the other hand, cannot effectively utilize cost data unless it is presented to them in a meaningful and informative way.

Leave a Comment