The term “management accounting”, as defined by the NAA in SMA Statement No. 1A, is used in its broadest sense and better relates to the contents of this book. The NAA defines management accounting as the process of:

Identification The recognition and evaluation of business transactions and other economic events for appropriate accounting action.

Measurement The quantification, including estimates, of business transactions or other economic events that have occurred or may occur.

Accumulation The disciplined and consistent approach to recording and classifying appropriate business transactions and other economic events.

Analysis The determination of the reasons for, and the relationships of, the reported activity with other economic events and circumstances.

Preparation and Interpretation The meaningful coordination of accounting and/or planning data to satisfy a need for information presented in a logical format, and, if appropriate, including the conclusions drawn from those data.

Communication The reporting of pertinent information to management and others for internal and external uses.

Management accounting is used by management to:

Plan To gain an understanding of expected business transactions and other economic events and their impact on the organization.

Evaluate To judge the implications of various past and/or future events.

Control To ensure the integrity of financial information concerning an organization’s activities or its resources.

Assure accountability To implement the system of reporting that is closely aligned to organizational responsibilities and that contributes to the effective measurement of management performance.