Some Definitions

I have taught Management Accounting and I give here some of the important definitions which will be of use to my readers who are interested in the subject.
Benchmarking
A study of organizations that are among the best in the world at performing a particular task.
Budget
A detailed plan for the future, usually expressed in formal quantitative terms.

Business process
A series of steps that are followed in order to carry out some task in a business.
Constraint
Anything that prevents an organization or individual from getting more of what it wants.

Control
The process of instituting procedures and then obtaining feedback to ensure that all parts of the organization are functioning effectively and moving toward overall company goals.

Controller
The manager in charge of the accounting department in an organization.

Controlling
Ensuring that the plan is actually carried out and is appropriately modified as circumstances change.

Cycle time
See Throughput time.
Decentralization
The delegation of decision-making authority throughout an organization by providing managers at various operating levels with the authority to make key decisions relating to their area of responsibility.

Directing and motivating
Mobilizing people to carry out plans and run routine operations.

Feedback
Accounting and other reports that help managers monitor performance and focus on problems and/or opportunities that might otherwise go unnoticed.

Financial accounting
The phase of accounting concerned with providing information to shareholders, creditors, and others outside the organization.

Finished goods
Units of product that have been completed but have not yet been sold to customers.

Just-in-time (JIT)
A production and inventory control system in which materials are purchased and units are produced only as needed to meet actual customer demand.

Line
A position in an organization that is directly related to the achievement of the organization's basic objectives.

Managerial accounting
The phase of accounting concerned with providing information to managers for use in planning and controlling operations and in decision making.

Non-value-added activity
An activity that consumes resources or takes time but that does not add value for which customers are willing to pay.

Organization chart
A visual diagram of a firm's organizational structure that depicts formal lines of reporting, communication, and responsibility between managers.

Performance report
A detailed report comparing budgeted data to actual data.

Plan-do-check-act (PDCA) cycle
A systematic approach to continuous improvement that applies the scientific method to problem solving.

Planning
Selecting a course of action and specifying how the action will be implemented.

Planning and control cycle
The flow of management activities through planning, directing and motivating, and controlling, and then back to planning again.

Process Reengineering
An approach to improvement that involves completely redesigning business processes in order to eliminate unnecessary steps, reduce errors, and reduce costs.

Raw materials
Materials that are used to make a product.

Segment
Any part of an organization that can be evaluated independently of other parts and about which the manager seeks financial data. Examples include a product line, a sales territory, a division, or a department.

Setup
Activities that must be performed whenever production is switched over from making one type of item to another.

Staff
A position in an organization that is only indirectly related to the achievement of the organization's basic objectives. Such positions are supportive in nature in that they provide service or assistance to line positions or to other staff positions.

Theory of constraints (TOC)
A management approach that emphasizes the importance of managing constraints.

Throughput time
The time required to make a completed unit of product starting with raw materials. Throughput time is also known as cycle time.

Total quality management (TQM)
An approach to continuous improvement that focuses on customers and using teams of front-line workers to systematically identify and solve problems.

Work in process
Units of product that are only partially complete and will require further work before they are ready for sale to a customer.
Managerial accounting assists managers in carrying out their responsibilities, which include planning, directing and motivating, and controlling.

Since managerial accounting is geared to the needs of the manager rather than to the needs of outsiders, it differs substantially from financial accounting. Managerial accounting is oriented more toward the future, places less emphasis on precision, emphasizes segments of an organization (rather than the organization as a whole), is not governed by generally accepted accounting principles, and is not mandatory.

The business environment in recent years has been characterized by increasing competition and a relentless drive for continuous improvement. Several approaches have been developed to assist organizations in meeting these challenges-including just-in-time (JIT), total quality management (TQM), process reengineering, and the theory of constraints (TOC).

JIT emphasizes the importance of reducing inventories to the barest minimum possible. This reduces working capital requirements, frees up space, reduces throughput time, reduces defects, and eliminates waste.

TQM involves focusing on the customer, and it employs systematic problem solving using teams made up of front-line workers. Specific TQM tools include benchmarking and the plan-do-check-act (PDCA) cycle. By emphasizing teamwork, a focus on the customer, and facts, TQM can avoid the organizational infighting that might otherwise block improvement.

Process Reengineering involves completely redesigning a business process in order to eliminate non-value-added activities and to reduce opportunities for errors. Process Reengineering relies more on outside specialists than TQM and is more likely to be imposed by top management. The theory of constraints emphasizes the importance of managing the organization's constraints. Since the >constraint is whatever is holding back the organization, improvement efforts usually must be focused on the constraint in order to be really effective.

Most organizations are decentralized to some degree. The organization chart depicts who works for whom in the organization and which units perform staff functions rather than line functions. Accountants perform a staff function-they support and provide assistance to others inside the organization.

Ethical standards serve a very important practical function in an advanced market economy. Without widespread adherence to ethical standards, the economy would slow down dramatically. Ethics are the lubrication that keep a market economy functioning smoothly. The Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management provide sound, practical guidelines for resolving ethical problems that might arise in an organization.