Management Accounting 1

CODE: BBCB014
2 credits
Term 5, SYBBA/BTTM
Academic Year:2020-21

Lecturer in-charge: Twinkle Fernandes, M.com (Accounting &Finance) , MBA

(HR), Inter CS, SET
Contact :+91-9764162078, [email protected]
Chapter I : INTRODUCTION TO
MANAGEMENT ACCOUNTING
 Learning Objectives
• What is Accounting? Users of Accounting Information
• Branches of Accounting
• What is Management Accounting
• Features of Management Accounting
• Scope of Management Accounting
• Objectives of Management Accounting
• Difference between Financial Accounting Vs. Management
Accounting and Management Accounting vs. Cost Accounting
• Role of Management Accountant
• Advantages and limitations of Management Accounting
 What is Accounting ?
•Accounting as a language
•“Accounting is the art of recording, classifying and summarizing in
a significant manner in terms of money, transactions and events that
are of financial character and interpreting the results thereof.’
•The art of recording involves writing the transactions of financial
character reasonable soon after the occurrence, in the records
maintained by the company.
•The classifying is concerned with the systematic analysis of the
recorded data under appropriate heads.
•The summarizing is presenting data in a manner which is useful to
internal and external end users of accounts.
Users of Accounting information
• Individuals and organizations

External • Regulatory authorities and government

agencies
• Labour unions, stock brokers and trade
Users associations Auditors of the business
• Share holders
• Customers
• Society

Internal • Owners of the business

• Managers at various levels, chief

Users executives Employees of the business

Branches of Accounting
Financial
Accounting

Management Cost
Accounting Accounting Accounting

Tax
Accounting
 What is Management Accounting
• It is the presentation of the accounting information in such a
way as to assist management in the creation of policy and
in day to day operation of an undertaking .
• It comprises accounting methods , system and techniques ,
which coupled with special knowledge and ability , assist
management in task of maximising profits or minimising
losses.
• It is concerned with accounting information which is useful
to management
 Features of Management Accounting
• It is a separate branch of accounting , provide useful
data in decision making process .
• It is based on anticipated events .
• It is selective in nature .
• No set of rules and formats
• It establishes cause and effect relationship
• It provides information and not decisions.
• Use of special techniques and concepts
• It is subjective in nature .
• It is inter-disciplinary subject .
• It depends upon informational needs of the management.
 Scope of Management Accounting
• Financial Accounting
• Cost Accounting
• Revaluation Accounting
• Tax Accounting
• Budgetary Control
• Inventory control
• Reporting
• Internal control
• Office services
Functions of Management Accounting
• Recording the data
• Validating and modifying the data
• Analysis and Interpretation of data
• Reporting the data
• Installation of sound accounting system
• Providing feedback reports
• Evaluating the performance of management
Objectives of Management Accounting
• Planning and policy formulation:
Planning involves forecasting on the basis of available information,
setting goals; framing polices determining the alternative courses of
action and deciding on the program of activities. Management
accounting can help greatly in this direction. It facilitates the
preparation of statements in the light of past results and gives
estimation for the future
Objectives of Management Accounting
Interpretation process:
• Management accounting is to present financial information to the
management.
• Financial information is technical in nature. Therefore, it must be
presented in such away that it is easily understood.
• It presents accounting information with the help of statistical devices like
charts, diagrams, graphs, etc
 Objectives of Management
Accounting
Assists in Decision-making process:
• With the help of various modern techniques management
accounting makes decision-making process more scientific.
• Data relating to cost, price, profit and savings for each of the
available alternatives are collected and analysed and provides
a base for taking sound decisions.
Objectives of Management Accounting
Controlling:
•Management accounting is a useful for managerial control.
Management accounting tools like standard costing and
budgetary control are helpful in controlling performance.
Cost control is affected through the use of standard costing
and departmental control is made possible through the use of
budgets
• Performance of each and every individual is controlled with
the help of management accounting.
Objectives of Management Accounting
Reporting:
•Management accounting keeps the management fully
informed about the latest position of the concern through
reporting.
•It helps management to take proper and quick decisions.
•The performance of various departments is regularly
reported to the top management.
 Objectives of Management
Accounting
Facilitates Organizing:
•“Since management accounting stresses more on Responsibility
Centres with a view to control costs and responsibilities, it also
facilitates decentralization to a greater extent.
• Thus, it is helpful in setting up effective and efficiently organization
framework.
Objectives of Management Accounting
Facilitates Coordination of Operations:
•Management accounting provides tools for overall control
and coordination of business operations.
•Budgets are important means of coordination.
 Financial Accounting vs. Management
Accounting
 Financial Accounting covers the process of book keeping,
finalization of accounts, preparation of financial
statements, communication of accounting information to
users and interpretation thereof
 Management Accounting is concerned with accounting
information that is useful to management
 Financial Accounting emphasizes the preparation of reports
of an organization for external users whereas Management
Accounting emphasizes the preparation of reports for its
internal users
 Financial Accounting vs. Management
Accounting
 External users vs. Internal users
 Record of financial history vs. Emphasis on the future
 GAAP vs. Own rules
 Objectivity and verifiability vs. Flexibility
 Emphasis on accuracy vs. Acceptance of estimates
 Focus on company as a whole vs. Focus on segments of a company
 Bound by conventional accounting systems vs. Use of other
disciplines such as Economics, Statistics, OR, OB, etc
 Governed by Regulatory Bodies vs. Freedom of choice
 Role of a Management
Accountant
In brief, a management accountant performs the following
functions:
(i) Managerial planning and control including profit
planning.
(ii) Performance evaluations of managers at different level
and of the organisation as a whole.
(iii) Financial planning.
(iv) Analysis and interpretations of financial statements.
(v) Capital structure decision.
vi) Project planning and financing - capital budgeting.
(vii) Working capital forecast and financing.
(viii) Internal financing - dividend decision.
(ix) Investment management - consideration.
(x) Text administration. optimizing investment portfolio
with risk-return
(xi) Management Accountant is very closely associated
with systems analysis and data processing. He designs and
develops management information system and work study
in the organisation.
(vi) Project planning and financing - capital budgeting. (vii)
Working capital forecast and financing.
(viii) Internal financing - dividend decision.
(ix) Investment management - consideration.
(x) Optimizing investment portfolio with risk-return
(xi) Management Accountant is very closely associated with
systems analysis and data processing. He designs and develops
management information system and work study in the
organisation.
Difference Between Management Accounting and Cost
Accounting

Cost Accounting Management Accounting

• The main objective of cost • The primary objective of
accounting is to assist the management accounting is
management in cost control to provide necessary
and decision-making. information to the
management in the process
of its planning, controlling,
and performance
evaluation, and decision-
making.
• Cost accounting system uses • Management accounting
quantitative cost data that uses both quantitative and
can be measured in qualitative data. It also uses
monitory terms. those data that cannot be
measured in terms of
money.
• Determination of cost and • Efficient and effective
cost control are the primary performance of a concern is
roles of cost accounting. the primary role of
management accounting.
• Success of cost accounting • Success of management
does not depend upon accounting depends on
management accounting sound financial accounting
system. system and cost accounting
systems of a concern.
• Cost-related data as • Management accounting is
obtained from financial based on the data as
accounting is the base of received from financial
cost accounting. accounting and cost
accounting.
• Cost accounting reports are • Management accounting
useful to the management prepares reports exclusively
as well as the shareholders meant for the management.
and creditors of a concern.
Advantages of Management Accounting
• It helps to increase the efficiency of all functions of management
• It helps in target-fixing, decision-making, price-fixing, selection of
product-mix and so on
• Forecasting and Budgeting help the concern to plan the future and
financial activities
• Various tools and techniques provide reliability and authenticity to carry
out the business functions
• It is useful in controlling wastage and defects

• It helps in complete communication between all levels of management

• It helps in controlling the cost of production thus increasing the profit

percentage

• It  is proactive-analyses the governmental policies and  socio-economic

scenario which helps to assess the external environmental impacts on the
organization
 Limitations of Management Accounting
• It is concerned with financial and cost accounting. If these records
are not reliable, it will affect the effectiveness of management
accounting.

• Suggestions given by the management accountant may or may not

be executed by the management.
• It is very expensive. Only big concerns can adopt this method of
accounting.
• New rules and regulations are to be framed, hence there is a
possibility of opposition from the employees.
• It is only in the developing stage.
• It provides only data and not decisions.
• It is a tool to the management and not an alternative of management .