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Module 1 Management Accounting MA Basic Concepts and Considerations

Management accounting provides essential information for planning, organizing, directing, and controlling business operations, distinguishing itself from financial accounting by focusing on internal decision-making rather than historical data. It aids in cause and effect analysis, decision-making, and achieving organizational objectives while allowing flexibility in its practices. The scope of management accounting includes financial management, cost control, budgeting, inventory control, and reporting to management, making it crucial for effective business management.

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11 views

Module 1 Management Accounting MA Basic Concepts and Considerations

Management accounting provides essential information for planning, organizing, directing, and controlling business operations, distinguishing itself from financial accounting by focusing on internal decision-making rather than historical data. It aids in cause and effect analysis, decision-making, and achieving organizational objectives while allowing flexibility in its practices. The scope of management accounting includes financial management, cost control, budgeting, inventory control, and reporting to management, making it crucial for effective business management.

Uploaded by

cbcarino258.pbox
Copyright
© © All Rights Reserved
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MANAGEMENT

ACCOUNTING (MA) –
BASIC CONCEPTS AND
CONSIDERATIONS
01 Definition
LIST OF CONTENT
02 Objective and scope PRESENTATION

03 Financial Accounting vs
Management Accounting

04 Activities of Management
Accountant

Code of Conduct for Management

05 Accountant
INTRODUCTION
Accounting is an ancient art as old as money itself; however the role of
accounting has changing with economic and social developments. The
traditional view of accounting as a historical description of financial
activities is no longer acceptable. Accounting now is regarded as service
activity the function of which is to provide quantitative information about
economic activities.
Accountancy is the art of communicating financial information about a
business entity to users such as shareholders and managers. The
communication is generally in the financial form statements that show in
money terms the economic resources under the control of management;
the art lies in selecting the information that is relevant to the user and is
reliable.
FINANCIAL ACCOUNTING VS.
MANAGEMENT ACCOUNTING

Financial accounting –According to the American institute of


certified Public accountants “the art of recording , Classifying and
summarizing in a significant manner and in terms of money
transactions and events which are in part at least of a financial
character and interpreting the results thereof”
FINANCIAL ACCOUNTING VS.
MANAGEMENT ACCOUNTING

Functions of Financial accounting –


1. Recording
2. Classification of data
3. Summarizing
4. Deals with Financial Transactions
5. Interpreting Financial information
FINANCIAL ACCOUNTING VS.
MANAGEMENT ACCOUNTING
•Limitations of Financial Accounting:
1. Historical in nature
2. Provides information about the concern as a whole
3.Not helpful in price Fixation
4.Only Actual costs are Recorded.
5.Not Helpful in Taking Strategic Decisions.
6.Chances of manipulation.
Management Accounting- The Term management
Accounting Refers to accounting for the management
i,e accounting which provides necessary information
to the management for discharging its functions. The
functions are planning , organizing ,directing and
controlling of business operations.
•Charactersitics of Manangement Accounting

1.Providing Accounting Information


– The collection and classification of data is the primary function of
accounting department.(I,e from cost and financial accounting).The
information so collected is used by the management for taking policy
decisions. Management Accounting is a service function and it provides
necessary information to different levels of Mgt.
•Charactersitics of Manangement Accounting

2.Cause and effect analysis –Financial accounting is limited to the


preparation of profits and loss and finding out the ultimate result i.e Profit
and loss .Management Accounting goes a step further.

If there is a loss, the reasons for the loss are probed: if there is a profit the
factors directly influencing the profitability are also studied.
•Charactersitics of Manangement Accounting

3. Helps to take important decisions:


- Which are operational based and strategic in nature.

4. Helps in achieving of objectives:


- Management accounting helps in achieving organizational objectives.
Historical data is used for formulating plans & setting up objective
Actual performance is compared with the targeted figures and corrective
action if necessary.
•Charactersitics of Manangement Accounting

5. No fixed norms Followed


–In financial Accounting Certain rules are followed for preparing
Different accounting books. On the other hand no specific rules are followed
in management accounting as there is scope for flexibility in their
preparations and moreover outsiders have no access to them.
•Charactersitics of Manangement Accounting

6. Increase in efficiency
– Since Management accounting helps the management to take a
decision about the future ,the efficiency can be achieved by setting up goals
for each Department or section.
The performance Appraisal will pin point efficient and inefficient spots.
•Charactersitics of Manangement Accounting

7. Helps in co-ordination
- Management accounting techniques of planning also
helps in coordinating various business activities. Ex While Preparing
budgets for various Departments like production ,sales , purchases
etc there should be coordination among all the three depts. than
contradiction.
SCOPE OF MANAGEMENT ACCOUNTING

• Financial accounting –Management accounting is


mainly concerned with the rearrangement of the
information provided by financial accounting. Thus for
an effective and successful management accounting
there should be a proper and well designed financial
accounting system.
SCOPE OF MANAGEMENT ACCOUNTING

2. Cost accounting – Many of the techniques of cost control like


standard costing, budgetary control etc are used by management
accounting

3. Budgeting and forecasting – This includes framing of


budgets.in order to plan business activities for the future
forecasting and budgeting play a very significant role.
Comparison of actual performance with the budgeted
performance ,computation of variances, finding their causes.
SCOPE OF MANAGEMENT ACCOUNTING

4. Inventory control - Inventory Control denotes raw materials,


goods in the process of manufacture and finished products.
Inventory control is significant as it involves large sums. The
management should determine different levels of stock i.e
minimum, maximum and reorder level. The control of inventory
will help in controlling costs of products. Management
accountant will guide management as to when and from where
to purchase and how much to purchase.
SCOPE OF MANAGEMENT ACCOUNTING

5. Financial Management – Financial management is concerned


with the planning and controlling of the financial resources of
the firm. It deals with raising funds and their effective
utilization.
6. Reporting to management - One of the functions of
management accountant is to report to the management. The
reports are presented in the form of graphs, diagrams , statistical
techniques. The reports may cover profit and loss statement,
Cash and fund flow statement, Stock reports etc. The reports may
be monthly, quarterly and half yearly.
SCOPE OF MANAGEMENT ACCOUNTING

7. Cost control procedures – Any system of management


accounting is incomplete with out effective cost control
procedures like inventory control , labor control, budgetary
control etc.
DIFFERENCES OF FINANCIAL ACCOUNTING
AND MANAGEMENT ACCOUNTING
DIFFERENCES OF FINANCIAL ACCOUNTING
AND MANAGEMENT ACCOUNTING
MANAGEMENT FUNCTIONS
THANK YOU!
ACTIVITY- ESSAY (1 paragraph)

Based on our discussion today, how


important is Management Accounting
to a business organization? And why?

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