Chapter 2

Introduction to Management Information

•This chapter looks at management information: its purpose,
sources, categories, desirable qualities, potential problems &
the role of trainee accountant in management accounting
system.
•Main topics in the chapter
1.Data & Information
2.The purpose of management information
3.Reports for management
4.Sources & categories of information
5.Management accounting & financial reporting
6.The limitations of cost & management accounting information
7.The role of trainee accountant in cost and management
accounting system
 1. Data & Information
Data & Information:
• Data is raw facts & figures without proper
purpose & meaning.
• Information is data that has been processed
so that it has a purpose & meaning.
• Managers need information not data.
• Management is term used for the people in
charge of running an organization.
• Management information can be described as
information given to the people who are in
charge of running an organization.
 Kit questions
• How would facts & figures which have been
processed & communicated to another
party be best described?
A. Data
B. Information

• Which of the following statements is/are

correct?
A. Data is a scientific term for facts, figures &
information
B. Information is data which has been processed
 2. Purpose of Management Information

• The purpose of management information is

to help managers to manage resources
efficiently & effectively through proper
planning & controlling of operations in order
to make well informed decision.
 Planning, Decision making & Controlling

• Planning: Planning means deciding upon what

should be done & how it should be done in
order to achieve the organization’s objectives.
• Decision Making: Decision making means
choosing between various alternatives.
• Controlling: Controlling means monitoring
what is actually happening, & if something
seems to be going wrong, deciding what
should be done to correct the problem.
 Kit questions
• Which of the following combinations best describe
the purpose of management information?
A. Planning, negotiating & decision making
B. Planning, decision making & publications
C. Planning, control & decision making

• The cost accountant has provided information

about actual & budgeted cost of the materials used
in production in last month.
The information will primarily aid management in
which of the following areas?
A. Planning
B. Controlling
C. Decision making
 3. Reports for management
• Producing useful management information such as reports
depends on understanding the needs of the end users and of
the organization.
• Reports to managers should enable them to plan properly,
make informed decisions and control resources efficiently. For
these they should be provided with the required level of
details.
• The level & time periods for reports will vary for different
organization and different managers within them.
• Reporting requires active co-operation among:
End users: managers and supervisors
Accounts department: Which usually process information
IT department: Which sets and make changes to computer
system
 The qualities of good information
• In order to make good & informed decisions managers
need good information.
• Good information should be:
1. Accurate
2. Complete
3. Cost-beneficial
4. User-targeted
5. Relevant
6. Authoritative
7. Timely
8. Easy to use
 Kit questions
• Which of the following is not the quality of good
information?
A. Clarity
B. Reliability
C. Accuracy
D. Computerized

• Which of the following is true of management information?

A. It is the same as operating information
B. It must be produced by a computer
C. It should be completely accurate regardless of cost
D. It should be produced if its cost is less than the increased
revenue it leads to
 4. Sources & categories of information

• There are many sources of management

information, both within the organization
(internal sources) & from outside the
organization (external sources).
• Management information can be both
financial & non-financial.
 Internal information
• Information collected from within (inside) the
organization are called internal information.
These include:
a) A system for collecting & measuring
transaction data e.g. sales, purchases,
inventory turnover etc.
b) Informal communication between manager
and staff ( by word of mouth or at meetings)
c) Communication between staff at all levels.
 Internal sources of information

• The main internal sources of management

information within an organization include:
– Accounting records
– Personnel record
– Production department records
– Detailed time records
 External information
• Information collected from outside the organization are called
external information, may be collected on routine basis or non-
routine basis.
Formal Routine external information:
a)Information about changes in tax law and the impact of changes on
the organization collected by tax specialist.
b)Information about any new legislation collected by legal expert or
other officials.
c) Research & development information gathered from other
organizations on similar tasks.
d)Attitudes and opinions of customers obtained through market
research.
Informal Non-routines external information might include
information obtained from reading newspaper, TV reports, meeting
with trade publications.
 External sources of information
• In addition to internal sources, information
can also be obtained from the following
external sources:
– Suppliers
– Customers
– Government
– Newspapers & magazines
– Libraries & information services
– Electronic sources of information
5. Management accounting & financial reporting

• Financial and management accounting are

different:
• Financial accounting is a way of reporting
financial performance & financial position of a
business.
• Management accounting is a management
information system which analyze data to
provide information as basis for managerial
actions.
• The main differences between both systems are:
 Difference between financial &
management accounting
Financial Accounting Management Accounting
Financial accounts are prepared for Management accounts are prepared for
external users. internal users.

Limited companies must, by law, prepare No legal requirements to prepare

financial accounts. management accounts.

Format of financial accounts is Format of management accounts is

determined by law and by accounting entirely at management discretion.
standards.

Financial accounts focus on the business Management accounts focus on specific

as a whole. areas.

Most financial information are in May include both monetary & non
monetary terms. monetary information.

Present historic picture of past Historic records as well as future planning

information. tools.
 Computer systems and coding structures
• Computer systems and coding structures help
to sort the information into the categories and
formats required for both financial and
management accounting.
• E.g. 22900 Advances, 42MOPW
 Cost Accounting
• Cost accounting is a part of management
accounting.
• Cost accounting is a process used by
management to gather, store & analyze cost
data.
• The purpose of cost accounting is to provide
management with costs & profits information.
 6. Limitations of cost & management
accounting
As we discussed for cost & management
accounting to be useful it must have certain
characteristics. If these characteristics are not
present then its usefulness will be limited.
 7. The role of trainee accountant
• Trainee accountant will have access to large amount of information.
• So his role include to provide information about:
a) Costs of products or services
b) Costs of operating department
c) Revenues
• Trainee accountant is also expected to provide information about
inventory valuation, variances, future costs through planning &
budgeting.
• Trainee accountant may also be required to produce regular
performance statements.

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