Management accounting
Unlike financial accounting, management accounting collects and analyses financial information for internal purposes. We have already seen that managers seek to plan, control and make decisions: management accounting provides costing, budgeting and other information to help managers.
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Financial accounting |
Management accounting |
is prepared for:
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external reporting; |
internal use; |
is presented: |
in a way dictated by external bodies/legal requirements; |
in a way designed by the firm’s management; |
consists of: |
financial information; |
financial and non-financial information; |
is concerned with:
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past data; |
past data and future data. |
Auditing
Once information has been collected and accounts have been prepared, external auditors may be employed to check the fairness and accuracy of these accounts. (For some business organizations, such as limited companies, this is a legal requirement.) The role of these external auditors is to protect the interests of the company’s shareholders. Internal auditors are also found: unlike external auditors, they are employees of the company who will check the company’s various book-keeping and accounting procedures.
Taxation
Accountants may choose to specialize in taxation, seeking to reduce their clients’ tax bills – tax avoidance rather than tax evasion. Clients include sole traders, partners and limited company organizations.
III. Translate the following word combinations.
Financial accounting, analyzing an organization’s transactions, to achieve the aims of the firm, the planning process, to monitor closely, to meet targets, non-profit–making organizations, to survive in competitive world, to check the fairness and accuracy of accounts.
IV. Match the accounting terms with their definitions.
1. Management accounting |
a) … records and analyzes an organization’s activities for its owners, managers. |
2. Financial accounting |
b) The activities of … must be managed properly and controlled efficiently. |
3. Planning |
c) … collects and analyzes financial information for internal purposes. |
4. Making decisions |
d) … helps to identify what must be done to achieve the aims of the firm. |
5. Controlling |
e) … selects the best course of action so the firm can meet its targets. |
6. Taxation |
f) … is recording of an organization’s accounts.
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7. Book-keeping |
g) … is seeking to reduce their clients’ tax bills.
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V. Put a word or phrase in the correct place to complete the sentences.
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internal purposes, analyzing, making decisions, past activities,
the planning process, external auditors
Recording, summarizing and … an organization’s activities are defined as financial accounting.
Historical information shows the results of …
Managers can identify what must be done through …
… is the process of selecting the best course of a firm’s action.
Management accounting collects and analyzes financial information for …
… check the fairness and accuracy of a firm’s accounts.
VI. Read and translate the concepts paying attention to the difference between them.
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Tax avoidance is the (legal) attempt to reduce a client’s tax bill to its absolute minimum.
Tax evasion is the illegal non–declaration of taxable income.
VII. Compare financial and management accounting.
Determine what they have in common and what is different.
Complete the table.
Management accounting |
… |
consists of … |
Financial accounting |
presented … |
… |
VIII. Make the following sentences negative.
1. An accountant records and summarizes firm’s activities.
2. Managers have to control the activities efficiently.
3. Useful information was provided to the firm’s owners.
4. The course of action will be selected by the firm’s manager.
5. The auditor checked the company’s accounts.
6. External auditors protect the interests of the company’s shareholders.
IX. Form questions for the sentences of exercise VIII.
Fill in necessary verbs.
1. What ________ an accountant ________?
2. How ________ managers _________ control the activities?
3. What information _________ ________ to the firm’s owners?
4. Who ________ the course of action _______ by?
5. What ________ the auditor _________?
6. Whose interests _________ external auditors ________?
X. Using the information from the text
1. Name and describe three functions of management.
2. Distinguish between:
a) book-keeping and financial accounting;
b) financial accounting and management accounting;