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Notes Overview of Management Accounting Lyst4620

Notes Overview of Management Accounting Lyst4620

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Anil Kumar
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Notes Overview of Management Accounting Lyst4620

Notes Overview of Management Accounting Lyst4620

Uploaded by

Anil Kumar
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OVERVIEW OF

MANAGEMENT ACCOUNTING
Management accounting : It is concerned with all such accounting information that is useful
for the management.
The chartered institute of management accountants of UK has given a very authoritative
and comprehensive definition as follows:
“management accounting is an integral part of management concerned with identifying,
presenting and interpreting information used for:
(i) Formulating strategy
(ii) Planning and controlling activities
(iii) Decision making
(iv) Optimising the use of resources
(v) Disclosure to shareholders and others external to the entity
(vi) Disclosure to employees
(vii) Safeguarding assets”
Relationship of management accounting to cost accounting and financial accounting

Preparing
profit & loss FINANCIAL
account and ACCOUNTING
balance sheet

Analysing cost
for control and COST ACCOUNTING
maximising
efficiency

Assisting
management MANAGEMENT
for planning, ACCOUNTING
decision
making and
control
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Characteristics or nature of management accounting

Financial and
Useful in
cost accounting Internal use
decision making
information

Flexibility in
Concerned with
Purely optional presentation of
future
information

Functions or objectives of management accounting

Planning

Coordinating

Controlling

Communication

Financial analysis and interpretation

Qualitative information

Tax policies

Decision making

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Financial accounting and management accounting - Comparison

Basis Financial accounting Management accounting


External and Financial accounting information Management accounting
internal users is mainly intended for the information is mainly meant for
external users like investors, internal user i.e., management
shareholders, creditors,
government etc
Accounting It is based on double entry It is not based on double entry
method system for recording business system
transactions
Statutory Under company law and tax laws, Management accounting is optional
requirements financial accounting is obligatory though its utility makes it highly
to satisfy various statutory desirable to adopt it
provisions
Analysis of cost Financial accounting shows the Management accounting provides
and profit profit/loss of the business as a detailed information about
whole. It does not show the cost individual products, plants,
and profit for individual products, departments or any other
processes or departments etc responsibility centre
Past and future It is concerned with recording It is future oriented and
data transactions which have already concentrates on what is likely to
taken place i.e., it represents past happen in future though it ,ay use
or historical records past data for future projections
Periodic and Financial reports i.e., profit & loss Management accounting reports
continuous account and balance sheet are are prepared frequently, i.e., these
reporting prepared usually on a year to may be monthly, weekly or even
year basis daily depending on managerial
requirements
Accounting Companies are required to Management accounting is not
standards prepare financial accounts bound by accounting standards. It
according to Accounting may use any practice which
Standards issued by the Institute generates useful information to
of Chartered Accountants of India management
Types of Financial accounting prepares In management accounting special
statements general purpose statements, purpose reports are prepared, eg.,
prepared profit & loss account and balance performance report of sales
sheet which are used by external manager or any other department
users manager which are used by the top
level management
Publication and Financial statements i.e., P&L Management accounting
audit account and balance sheet are statements are for internal use and
published for general public use thus neither published for general
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and also sent to shareholders. public use nor these are required to
These are required to be audited be audited by Chartered
by the Chartered Accountants. Accountants
Monetary and Financial accounting provides Management accounting may apply
non-monetary information in terms of money monetary or non-monetary
measurements only measurement. For example,
information may be expressed in
terms of Rs. or units of quantity,
machine hours, labour hours etc

Cost accounting and management accounting – Comparison

Basis Cost accounting Management accounting


Scope scope of cost accounting is Scope of management accounting
limited to providing cost is broader than cost accounting as it
information for managerial uses provides all types of information
i.e., cost accounting as well as
financial accounting
Emphasis Main emphasis is on cost Main emphasis is on planning,
ascertainment and cost control to controlling and decision making to
ensure maximum profit maximise profits
Techniques Various techniques used by cost Management accounting also uses
employed accounting include standard all these techniques used in cost
costing and variance analysis, accounting but in addition it also
marginal costing and cost volume uses techniques like ratio analysis,
profit analysis, budgetary control, funds flow statement, statistical
uniform costing etc analysis, operation research and
certain techniques from various
branches of knowledge such as
mathematics, economics etc
whichsoever can help management
in its tasks
Evolution Evolution of cost accounting is Evolution of management
mainly due to the limitations of accounting is due to limitations of
financial accounting cost accounting. In fact,
management accounting is an
extension of the managerial aspects
of cost accounting.
Statutory Maintenance of cost records has Management accounting is purely
requirements been made compulsory in voluntary and its use depends upon
selected industries as notified by its utility to management
the govt from time to time
Installation Cost accounting system can be Management accounting cannot
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NATURE AND SCOPE OF MANAGEMENT ACCOUNTING Page 5
installed without management installed without a proper system
accounting of cost accounting

Limitations of management accounting

Based on historical data

Lack of wide knowledge

Complicated approach

Costly system

Lack of objectivity

Resistance from staff

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