Other departments such as production, quality, technical, marketing, engineering, purchasing etc had little information about the accounting procedures and information. However, the development of scientific management techniques in the corporate world stressed the importance of spreading accounting information to the entire departments of an organization to improve the efficiency of the organization. Earlier financial accounting, cost accounting etc were some of the renowned terms in the corporate world; however, at present apart from these accounting systems, management accounting is also gaining prominence.
What is Management accounting?
Management accounting combines accounting, finance and management with the leading edge techniques needed to drive successful businesses. It advises managers about the financial implications of projects, explains the financial consequences of business decisions, formulates business strategy, monitor spending and financial control, conduct internal business audits and explain the impact of the competitive landscape (What is Management accounting?)
Man, material, machine and money are the major resources of an organization which should be managed properly to raise the productivity and efficiency of an organization. All these resources were earlier managed by concerned employees and department managers alone. For example, production workers and managers were responsible only for the production management whereas purchasing manager and employees were responsible only for the materials management. In other words, all the managers and employees were bothered about their assigned duties alone earlier. They never thought about the consequences of their activities. For example, earlier production people often stopped their production activities even for silly problems of the machineries since they were unaware of the impacts of such stoppage of production to the organization. Even an hour long production loss may cause substantial damages to the organization. After the development of scientific management principles in the 1990’s and the subsequent development of management accounting, production workers also started to get the exact information about the losses incurred by the organization even for an hour long delay in production. In other words, the production workers started to realize the depth of problems caused to the company due to their deliberate production delaying activities. The above awareness force production employees to avoid such unnecessary delay or stoppage in production thus the company would be benefitted immensely from that. Not only the production department, all the other departments can also improve their efficiency and productivity if they get accounting information. “Management accounting systems were made in conjunction with scientific management movement” (Johnson, 1991, p.10) and moreover, it succeeded in revealing the importance of sharing accounting information to other departments in order to make the employees aware of the consequences of their activities and to improve the productivity of the organization. According to Johnson (1991), “management accounting system serves as a two way communication link between the senior and subordinate managers”(Johnson, 1991, p.4). It is impossible for the top managers to take decisions based on the data available to them alone. Data may not guide the manager always in the right direction. Feedbacks from the top and bottom are necessary for the managers to take sound decisions. Employees often twist the information before passing it to the top management,