Education And Debate

Management for Doctors: Management accounting

BMJ 1995; 310 doi: (Published 11 February 1995) Cite this as: BMJ 1995;310:381
  1. Anthony Cook, lecturera
  1. a Department of Accounting and Finance, University of Birmingham, Birmingham B15 2RT

    There is a distinction to be made between financial accounting and management accounting. Financial accounting is concerned with having sound financial systems in place to enable routine transactions—the payment of wages and salaries, the purchase of goods and services, the collection of income from customers, and so on—to take place; to maintain appropriate records; and to produce year end accounts. Management accounting, on the other hand, is concerned with producing financial information to assist the management of the organisation.

    Back in 1978, a Royal Commission noted the almost complete absence of dynamic management accounting information in the NHS,1 so most financial developments during the 1980s were developments in management accounting. However, the government's reforms following the 1989 Working For Patients white paper have initially had an enormous impact on NHS financial accounting. In particular, the creation of the NHS trusts has been important in two respects. Firstly, they need their own finance departments—with all the appropriate systems—within the trust. Previously such systems were usually located within the district health authority. This has entailed a massive reorganisation of finance departments. Secondly, trusts are subject to a three point financial regime which affects their balance sheet, their income and expenditure account, and their funds flow statement. Now that the restructuring of the NHS is nearing completion (well, maybe) the pendulum is swinging back towards management accounting.

    The Chartered Institute of Management Accountants Official Terminology defines management accounting as “an integral part of management concerned with identifying, presenting and interpreting information used for:

    • Formulating strategy

    • Planning and controlling activities

    • Decision taking

    • Optimising the use of resources.”2

    Such a definition requires that we are clear about the overall objectives of the organisation. Most private sector commercial organisations might define their financial objectives as “maximising their return on capital employed,” but in the …

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