Cost “Accounting is the application of accounting methods and techniques to identify, collect, classify, record, and analyze costs incurred in the production of a product or provision of service. It forms part of the internal management information system, with its principal uses as managerial
decision-making, planning, control, and general estimation of costs. It provides an internal financial information system that helps analyze past, present, and future data to solve a variety of problems that confront managers.
Management accounting rests on cost accounting systems. It involves restructuring of accounting
provided by the cost accounting system to help management perform their basic functions. There are several definitions of management accounting but the most widely accepted definition is the one given by the Chartered Institute of Management Accountant
(CIMA). CIMA defines management accounting as
• an integral part of management concerned with identifying, presenting, and interpreting information used for formulating strategy, planning and controlling activities, and decision-making.
optimizing the use of resources, disclosure to shareholders, and externality of the entity. disclosure to employees and safeguarding assets.
The definition given by CIMA clearly shows that management accounting comprises the use of strategic management techniques, financial management, cost, and financial accounting, as well as financial control, and internal or management audits; hence, cost accounting is an aspect of management accounting.
As the organization expands, its management becomes complex. It becomes necessary to decentralize management functions, such as planning, controlling, and decision-making, to the management team.
For these functions to be performed effectively, there is a need for reliable and relevant information to serve as a basis for performing them, and such information is designed and produced by cost and management accounting systems.
Cost and management accounting, therefore, is concerned with the provision of financial, non-financial, and economic information to management for effective management of the organization. It deals with accounting for cost, preparation, and presentation of accounting
information to management to help them perform their functions effectively.
