MANAGEMENT ACCOUNTING AS A TOOL FOR DECISION MAKING

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF STUDY

Accounting is widely seen as the background of every business and has been defined in several languages by many scholars and today, accounting is called “the language business” because it is the vehicle for reporting financial information about a business entity to many different groups of people.

Accounting is typically divided between two main types: Financial management and management accounting. Financial accounting is concerned with providing financial information to investors, stock-holders and outside sources.

Management accounting is concerned with analyzing financial information and making informed decisions internally for the business.

This study however will dwell in management accounting as to highlight its roles in decision making process of an organization. In everyday life, decisions are made. A personal decision affects an individual but organizational decisions cause a change, good or bad, to people known as stakeholders. Decision making in an organization must be systematic and not off the cuff. A good executive must be good at decision making.

Relevant information increases company’s profitability and improvement in overall activities of the company. But when a company uses inadequate information in decision making, it will affect the progress of the company. Therefore information should be timely, relevant and accurate for sound decision making.

Majority of firms fail to maximize profit due to the fact that they don’t monitor or control their expenses on daily basis. Expenses in business need to be controlled and monitored because unnecessary expenses reduces the company’s profitability.

Sources of all revenue should also examine and determine of the company are working well and what needs to be changed for the progress of company.

1.2  STATEMENT OF PROBLEM

The statement of problem of this study, management accounting as a tool in decision making are as follows:

Some companies did not grow due to the fact that they don’t analyze the revenues and expenses of the company to determine what parts are working well and what needs to be changed.

Inadequate information hinders the decision of a company which is not good for sound decision making.

Finally, the quality of management decision is a reflection of the quality of the accounting and other information it receives. Bad decision in many cases results in destructive and subsequent failure of many private organization.

In view of these problems, this study is carried out as to find solution to 

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