Management accounting presented inunderstandablehumanaccessiblelanguage.

Management accounting presented inhumanaccessiblelanguage.

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Management accounting

Information section

How to Implement Management Accounting

How to Implement Management Accounting

Firstly, let’s clarify:

What does Management Accounting mean?

This is the type of accounting, the data  of which  serves as a basis for enterprise managers of different levels to make their managerial decisions.

How to implement management accounting at an enterprise.

Actually, you do not have to do something extraordinary.
Stage I.  Determine a person who will perform management accounting.
Stage II. Determine the chart of accounts to be used in management accounting.
Stage III. Describe all business processes of the enterprise.
Stage IV. Approve and adopt the forms of accounting.
Stage  V.   Choose a software product to be used forimplementing management accounting.

And now a bit of details from me:

I. Who exactly should keep management accounting.

At the majority of enterprises direct account keeping, i.e. input data reception, input of data  into the program, and output data reception are performed by economists.. This is mistake. Moreover, it could be   fatal for the future of the management accounting at the enterprise. In many respects the management accounting does not differ much from the accounting. It is actually accounting in its pure form. However, we can define accounting and management accounting, which have a lot in common:

  1. Both types of accounting are kept on the basis of the same principle – double-entry bookkeeping.
  2. Both types of accounting include three major accounting reports: balance sheet, profit and loss account,  cash flow statement, issued at the end of an accounting period.
  3. Both accounting bases are e periodically controlled by the contracting parties (suppliers,     contractors, subcontractors etc.)

There are only two differences:

  1. Accounting requires keeping to the regulations of the existing and acting standards and laws. Management accounting requires keeping tothe regulations and norms of an enterprise only.
  2. In our country, the circulation of funds within the frames of accounting is performed through the operating account and a cash desk. However, within the frames of management accounting funds circulate through the operating account and TWO cash desks.

I am writing all these just to explain and prove the following: MANAGEMENT ACCOUNTING SHOULD BE KEPT BY ACCOUNTANTS EXCLUSIVELY!!!   as in case you enable economists to keep management accountancy, you may fail in your business due to their poor knowledge in accounting and how to do the books..

Economists (if they work at the enterprise) are to take part in developing accounting policies, supervise how the accountants follow them, check the books and reports at the end of an accounting period as well as to use management accounting data to make an analysis of an enterprise activity ( analysis of actual plans,  index analysis, etc.).

II. Chart of account determination

There is no need to reinvent the wheel. You just have to take a chart of account model/template as a basis and modify it according to your needs. By the way, necessary corrections to be made will become obvious during the clause III.

You can easily formalize your modified chart of account with the help of the following table:


of accounts

No. of account

Name of account

Type of account


1 level


2 level


3 level



I have to mention that the number of analytics levels  depends on the software tool you normally use.

III. Description of business processes.

It seems like the only stage of the whole process that requires implementation experience . But it is not for the quality of process. It is just for you to be sure in what you do.

What does “business process” in management accounting mean? It is a combination of accounting operations that reflect the stages of an enterprise activity.

Examples of business processes:

  • stock material purchases,
  • sale of manufactured goods,
  •  salary payments, etc.

Thus, we have to fulfill the following table with the description of the enterprise business processes. We will apply to stock material purchases business process as an example.


Business deal








Stock material delivery



Receiving report



Stock and transport cost formation



Report of completed works



Payment to a supplier



Transfer order



Payment to a deliverer



Transfer order


Completing the table, please, remember that there is no accounting operation, which is not included in some business process.

But let’s turn to the table. Columns 1-3 do not require any explanations.

Column “Document”. There you should write the name of the document serving as a basis for the given operation.

Column “Notice” is intended for the explanations of the corresponding operations. Or it may contain a comment to the document being a basis for inputting data (see column “Document”) that it requires modifying and an appropriate specification is enclosed.

The number of business processes at the enterprise might be absolutely different, and you should not worry if you have too many or too few of them. The only meaningful point is the COMPLETE description of the enterprise’s activity in business processes and any operation, or entry cannot be missed.

Describing these business processes you have to understand what your aims are. These aims are the following ones:

  1. Description of business processes is to serve as a main part of specification for  programmers aiming at implementing a software product determined in clause V.
  2. These very descriptions provide the basis for your enterprise accounting policy. Later They are to be checked if the actual operations held at the enterprise meet the business process description. If there are any misinterpretations, the corrections are to be made in the business processes description or the very business process is to be corrected in accordance with the description.

IV. Reports and their forms.

There are three obligatory forms such as balance sheet, profit and loss account, cash flow statement(major accounting reports). It is difficult to invent something new for these forms, there is a bulk of them in the Internet, and your enterprise must have already developed the forms comfortable to be used.

All other reports are to be created if necessary in the form suitable for a user, i.e. enterprise managers of different levels.

Here you find the examples of additional variants in the management accounting for separate branches:

  • building (single-part production);
  • providing citizens with services (work with population and cash).

V. Software product determination

This stage is important, though not so much vital as it is considered to be. First of all, you have to realize (NOT EMBRACE THIS AS A UNIVERSAL TRUTH, BUT REALIZE) that any software product it can be Excel or ERP SAP/R3 program are just the tools unable to ensure management accounting keeping by the very fact of its purchase, and even the product installation on all the computers cannot solve the problems. Actually, at this stage they can arise.

I can share my personal experience with you: the major part of the Ukrainian enterprises does not need such expensive systems as ERP SAP at all. 1С is enough. However, I will not argue this matter. I believe that a software product means nothing. The point is that programmers are to be considered as a complement  to each software product and they have to adjust this product to that very specification, which will be developed on the grounds of clauses III and IV. The compromise can be always found with programmers in case of any difficulties with the specification implementation. The key point is to explain the programmers your expectations and requirements correctly.

About the problems

The main problem of management accounting implementation is a human factor. As a rule, the major problem of management accounting and software product implementation is the very stuff of this particular enterprise. For people it is always difficult to accept changes, especially if we talk about an accountant, if accompanied at least by the double increase in work load for a comparatively long period of time. Who will like this? The fact that afterwards the quality of their work will increase and the work load level will decrease up to the previous one (the more dip in work load is impossible to count on) does not gladden them absolutely. Thus, if your decision to implement management accounting at your enterprise is solid, you will have to have iron will and self-determination in implementing changes. Good luck.

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