L1: Introduction to Management Accounting

What is management accounting?

The identification, generation, presentation, and interpretation of relevant information to support internal decision-making

What is cost accounting?

A subset of management accounting focused on producing cost information to assist management.

What key information does a management accountant produce?

Management accounts (e.g. monthly SPL, SFP, cash flow)

• Budgets & forecasts

• Product profitability reports

• Capital investment appraisals

• Government returns

• Statutory accounts

• Cash flow reports

Who uses management vs financial accounting?

Management: internal users; Financial: external users.

What is the main purpose of management vs financial accounting?

Management: planning and control; Financial: record historical performance.

What are 3 key differences between management and financial accounting?

• Management is unregulated; financial follows laws (e.g. IFRS, CA06).

• Management is both forward-looking & historic; financial is historic.

• Management can be detailed & flexible; financial is standardised.

What is the role of information in planning?

Set objectives, explore how to achieve them, and decide based on available info

What is the role of information in decision-making?

Use data to make and implement effective decisions.

What is the role of information in control?

Compare actual vs expected results, evaluate, and adjust plans (TARA model).

Example of management information in practice?

A haulage company using monthly management accounts, weekly cost reports, and live dashboards on KPIs like delivery % and driver performance

What is responsibility accounting?

A system where parts of a business are assigned to individual managers who are responsible for their performance.

What is a responsibility centre?

A part of a business under the control of one manager, whose performance is evaluated based on that unit.

What is a cost centre?

A unit where only costs are recorded. Managers are judged on cost control (e.g. Tesco’s warehouse or HR department).

What is a revenue centre?

A unit where only revenue is tracked (e.g. regional sales manager). Performance based on revenue targets.

What is a profit centre?

A unit where both revenue and cost are tracked. Manager accountable for overall profit (e.g. a Tesco store)

What is an investment centre?

A unit responsible for revenue, cost, and capital investment. Measured by return on capital employed (e.g. UK division of McDonald's)