MANAGEMENT ACCOUNTING / المحاسبة الإدارية

MANAGEMENT ACCOUNTING: Traditionally, cost accounting is considered as the technique and process of ascertaining costs of a given thing.

In the sixties, the definition of cost accounting was modified as ‘the application of costing and cost accounting principles, methods, and techniques to the science, art, and practice of cost control and ascertainment of profitability of goods, or services’.

It includes the presentation of information derived therefrom for the purpose of managerial decision-making.

It clearly emphasizes the importance of cost accountancy achieved during the period by using cost concepts in more and more areas and helping management to arrive at good.

business decisions. Today, the scope of cost accounting has enlarged to such an extent that it now refers to the collection and providing all sorts of information that assists the executives in

fulfilling the organizational goals. Modern cost accounting is being termed as management accounting, since managers being the primary user of accounting information are increasingly using the data provided by the accounts, setting objectives, and controlling the operations of the business.

Accounting is a very old profession. Financial accounting is in use with the dawn of civilization.

As soon as counting and arithmetic started, and the use of money replaced the barter system, the financial accounting emerged in some form or other.

However, cost accounting is traceable to the earlier part of the seventeenth century. The earliest reference of cost accounting can be found in Robert Loder’s farm accounts 1610–20.

However, the industrial revolution in the 18th century brought about extensive mechanization of the production systems resulting in large-scale production.

Some sporadic efforts were made in U.K. and U.S.A. to install factory cost systems as far back as 1805. But the concept of prime cost was used around 1875 by some industrialists. Between 1885 and 1901, a number of publications from London and New York

explained the cost of manufacture, the distribution of establishment charges, the commercial organisation of the factories, factory accounts – their principles and practices, and finally a complete textbook on Cost Accounting Theory and Practice was published by J.L.Nicholson from New York in 1913

The cost accounting concepts advanced further with the beginning of the First World War.

The ‘cost plus’ concept was introduced during wartime in order to avoid delays in executing urgent supplies.

The contracts were entered on the basis that the supplier would be reimbursed the cost ‘plus’ a fixed percentage to cover administration and other overhead expenses and profit. Immediately, two things happened. One, a demand for qualified persons to calculate cost and two, deliberation of cost concepts for identifying the items or elements that enter the cost. The profession of cost accountancy got a real boost-up.

More and more people got interested in the profession. In 1919, the Institute of Cost and Works Accountants was established in U.K., which is now known as the Chartered Institute of Management Accountants (CIMA) at London.

Simultaneously, in U.S.A. the National Association of Cost Accountants, which is now known as the National Association of Accountants, was also established at New York.

Under the leadership of these two institutes, the profession and the concepts of cost accounting developed significantly. Before the Second World War, the mechanism of standard cost accounting, budgetary control, flexible budgeting and direct costing became known in the U.S.A. and U.K.