Management Accounting

Introduction

 MA consists of two words ‘management’ and

‘accounting’
 It is the study of managerial aspects of accounting.
 The emphasis is to redesigning accounting in such a
way that it is helpful to the management in
formation of the policy, control of execution and
appreciation of effectiveness.
 The term management accounting is foreign origin
 The term was first used in 1950 by a team of British
accountants in the USA
 A small undertaking – managed by the owner
himself – no necessity of any formal communication
system.
 Large undertakings – requires the evolution of
information system for helping management in
planning and assessing the results.
 Definitions of Management accounting

 ‘Management Accounting is the presentation of

accounting information in such a ways as to assist
management in the creation of policy and the day to
day operation of an undertaking’ Anglo American
Council on Productivity.
 Management Accounting is concerned with
accounting information that is useful to management
– Robert N Anthony.
 Characteristics and Nature

 1. Providing Accounting Information

 2. Cause and Effect Analysis
 3.Use of special techniques and concepts
 4.Taking important decisions
 5.Acheiving objectives
 6. No fixed norms followed
 7. Increases efficiency
 8.Supplies Information and not Decision
 9.Concerned with forecasting.
 Scope of Management Accounting

 1. Financial Accounting
 2. Cost Accounting
 3. Financial Management
 4. Budgeting and Forecasting
 5.Inventory control
 6.Reporting to Management
 7.Interpretation of data
 8.Control procedures and methods
 9.Internal audit
 10.Tax Accounting
 11.Office services.
 Objectives of Management Accounting

 Planning and policy formulation

 Helpful in controlling performance
 Helpful in organizing
 Helpful in interpreting Financial information
 Motivating Employees
 Helpful in Making Decisions
 Reporting to Management.
 Helpful in Co-ordination
 Helpful in Tax Administration.
 Functions of Management Accounting

To assist the management in performing its

functions effectively.
 collecting, processing, interpreting and presenting
data to management.
 Modification of data. –
 Re arrangement and modification of data.
 Planning and forecasting:
 Formulation of policies and execution of plans.

 Providing necessary information and data for processing.

 Financial Analysis and Interpretation:
- effective planning and decision making.
 Communication:
 MA establishes communication within organization
and with outside world.
 Facilitate Managerial Control:
 The standards for departments and individuals are
set up. The actual performance is recorded and
variations are calculated.
 Helps in Decision making:
 furnishes accounting data and statistical information required
for decision making process.
 Coordinating:
 The targets and performances are communicated to
the management from time to time.
 Different tools such as budgeting, financial analysis
and interpretation etc are provided.
 increase the efficiency and profitability of the
concern.
 Other functions:
 Administers tax policies and procedures
 Supervises and coordinates the preparation
of reports to the Govt
 Ensures fiscal protection of the assets
through adequate internal control and
insurance coverage
 Carries out continuous appraisal of
economic and social forces and interprets
their effect on business.
 Distn b/w Financial A and M A

 Financial accounting is concerned with the recording

of day to day transactions of the business.
 The concern is to find out the P/L account and
balance sheet
 The main concern of MA is to provide necessary
information– quantitative as well as qualitative for
planning and control.
Financial Management

 Reports to outside  Inside organization

organization
 Emphasis is on
 Emphasis is on
summaries of financial
consequences of past decisions affecting the
activities future
 Objectivity and  Relevance is
verifiability of data are emphasized.
emphasized
 Precision is required  Timeliness is required.
 Only summarized data  Detailed segment
for the entire reports about depts,
organization are products, customers,
prepared and employees are
prepared
 Must follow GAAP  Need not follow GAAP
 Mandatory  Not Mandatory.
 Features of data Provided by Financial Provided by
Accounting Management accounting
 1. Period After a stated period At frequent intervals
 2. Time Historical data Current and future data
 3. Unit of expression Money only Any statistical unit
 4. Nature Actual data Projected data
 5. Specificity Aggregates Detailed analysis
 6. Description Money consequences Events
 7. Reality Objective Subjective
 8. Precision Pie to Pie accuracy May be guess-work
 9. Principles Double entry system Cost benefit analysis
 10. Legality Obligatory Optional
 11. Purpose Overview of entire Analytical details of such
Business activity activities as call for
decisions
 Distn b/w MA and Cost accounting

Object : The primary objective of cost accounting is to

determine and to record the cost of producing a
product or providing a service.
 Nature: Cost Accounting is based on past and
present facts and figures while management
accounting deals with future projections and plans.
 Principles : Certain principles and procedures are
followed in the system of costing. But no such
principles and procedures are followed in
management accounting.
 Data used: Only quantitative aspect is recorded in
cost accounting while management accounting uses
both quantitative and qualitative information.
 Parties: Cost accounting data are preferred by both
internal as well as external parties while, information
furnished by management accounting is useful only
to management.
 Tools of MA

 Financial planning
 Analysis of financial statements
 Historical Cost accounting
 Standard costing
 Budgetary control
 Marginal Costing
 Decision Accounting
 Revaluation Accounting/Replacement Accounting.
 Ratio Accounting
 Control accounting
 Internal auditing
 Management Information System
 Statistical Techniques.
 Limitations of Management Accounting

 Based on Accounting Information

 Lack of knowledge
 Intuitive decisions.
 Not an alternative to administration
 Costly affair
 Personal Bias
 Psychological Resistance.