Abstract
The paper distinguishes between financial and managerial accounting putting more emphasis on managerial accounting. The users, uses and components of managerial accounting are then discussed in detail. The Amazon Company is also discussed and more so the fourteen leadership principles discussed by Rossman in his book ‘The Amazon Way’.
Managerial Accounting
Managerial accounting refers to the process of identifying, scrutinizing, record keeping and presentation of financial data by the management of a company. The recorded information is then used for internal decision making, planning and control of company affairs. On the other hand, financial accounting entails recording of financial information about a company for use by external stakeholders such as investors, creditors and the government. In the past, companies only relied on financial accounting which provides information regarding the financial position of the company through the use of the income statements as well as the balance sheets. However, today companies have evolved to require use of managerial accounting which enables companies to make important decisions as well as handle problems as and when they arise. This paper will focus on discussing managerial accounting and also focus on the Amazon way.
Accounting information is required by different stakeholders of a company. For instance, shareholders require financial information regarding a particular company to determine whether it would be a wise decision to invest with the company in question. On the other hand, managers of a company such as Amazon require financial data to enhance their decision making and planning of activities to be undertaken by the company. Employees are internal stakeholders of a company and they require financial data regarding the company they work for so that they are able to determine whether the company can meet their wage demands. Creditors of a company also use accounting information to determine whether a company is capable of meeting its financial requirements in the case it owes other firms money. The government requires the financial data of a company to determine the total sales as well as the profits realized thereafter (Drury, 2013). The information is then used by revenue authorities to determine whether a company is meeting its tax requirements.
The difference between managerial accounting and financial accounting is determined by the users of the information obtained. Accounting concentrates on provision of information and data that is relevant to the specific recipients. For managerial accounting to be effective, the information provided must be relevant otherwise it will be of no use (Drury, 2013). As such, management accountants ought to work closely with other management levels in an organization in order to determine which information is useful to a particular department.
Management accounting can only be effective if data measurement is done correctly. Accountants therefore have a crucial role of ensuring measurement is done accurately in order to ensure relevancy of information provided to managers for decision making (Drury, 2013). Data that is quantified provides more accurate information as compared to use of qualitative information to determine decision making. Most firms use monetary terms to measure value of goods and services. However, any measurement tool is applicable as long as it is stable.
Uses of managerial accounting
Managerial accounting is applicable in several areas of a company such as Amazon. Firstly, managerial accounting is crucial for planning and budgeting. Managers through the help of managerial accounting are able to plan on what quantity of products to sell and at how much (Drury, 2013). The operations of a company have to be sustainable by the available funds hence, the price of goods should be set at a price that caters for the costs of production as well as allow for the company to make some profit.
Secondly, management accounting is useful in decision making. For a company to make crucial decisions, the management has to make use of the information provided by managerial accounting. The information enables managers to prioritize projects through use of relevant costing because not all projects are profitable. The process of making a decision begins with the management accountants gathering any relevant information regarding a particular course of action as well as other alternatives. Then, the managers are tasked with the decision of identifying the best action plan. Then, the leaders implement the decision selected (Drury, 2013). The last process of decision making is evaluation of the plan to determine whether the outcome is in line with the initial plan.