Management Accounting

Introduction :

Accounting is the language of business

employed to communicate the financial

information to various parties who are

interested in the information. Accounting

can broadly be classified into three

categories.

Financial accounting

Cost accounting

Management accounting

Meaning

Management accounting is concerned with

accounting information that is useful to

management.

The process of identifying, measuring,

analyzing, interpreting, and communicating

information for the pursuit of an

organization's goals.

Conti…

The key difference between managerial

and financial accounting is that

managerial accounting information is

aimed at helping managers within the

organization make decisions. In

contrast, financial accounting is aimed at

providing information to parties outside

the organization.

Characteristics and Nature of

Management Accounting :

Helpful in Decision Making:-It is an

important feature of management accounting.

In fact, it helps the management of

organization by providing relevant and

accurate information from various sources

(like financial and cost accounting) in order to

make sound decisions to remove business

problems.

Conti…..

Provides Data, Not the Decision:- It only provides required data and information to the management, not the decision.

Assist in Achieving Objectives:-Management Accounting is always assist organization in achieving its predetermined goals. Because it provides detailed information in regarding the weakness and the strength of organization in the form of report,

Conti.. Related to Future:- Management Accounting is

an accounting system which is directly related to future course of events. It means by preparing this account any organization can forecast its future on the basis available information in relating the past events.

Use of Special Techniques:- Management Accounting uses special tools or techniques (like standard costing, budgetary control, control accounting, marginal costing etc) for composing the accounting information and data more accurate and relevant.

Functions or Objectives of

Management Accounting : Planning and forecasting – Information and date

provided by management accounting helps management to forecast and prepare short-term and long term plans for the future activities of the business and formulate corporate strategy.

Financial analysis and interpretation: In order to make accounting data easily understandable, the management accounting offers various techniques of analyzing, interpreting and presenting this data in non-accounting language so that every one in organization understands it. Ratio analysis, cash flow and funds flow statements trend analysis, etc., are some of the management accounting techniques which may be used for financial analysis and interpretation.

Conti…

Qualitative information: Apart from monetary

and quantitative data, management

accounting provides qualitative information

which helps in taking better decisions. Quality

of goods, customers and employees, legal

judgments, opinion polls, logic, et, are some

of the expels of qualitative information

supplied and used by the management

accounting system for better management.

Conti..

Decision – Making: Correct decision making

is crucial to the success of a business.

Management accounting has certain special

techniques which help management in short

team and long term decisions. For example,

techniques like marginal costing, differential

costing, discounted cash flow, etc., help in

decisions such as pricing of products, make

or buy, discontinuance of a product line,

capital expenditure, etc.

Furnishes Relevant data : Management accounting furnishes the Relevant data and information in way required by the management to assist them in taking and controlling various decesion.

Controlling: Controlling is a very important function of management and management accounting helps in controlling performance by control techniques such as standard costing, budgetary control, control rations, internal audit, etc.

Need and Importance of

M.A : Determine of Aim: Management accounting

on the basis of the information available

determines its goal and tries to find out the

route through which it can reach the goal.

Helps in the Preparation of Plan: Present

age is the age of planning. That producer is

considered as most successful producer who

produces articles according to the plan and

needs of the consumers.

Conti…. Better Services to Customers: The cost

control device is management accounting

enables the reduction in prices of the Product.

All employees in the concern are made cost

Conious.

Easy to take judgment: Before taking any

plan or to determine policy. There are several

plans or policies before the management on

the basis of the study he decides which plan

and policy was to be adapted so that it may be

more useful and helpful.

Conti..

Measurements of performance: The

techniques of budgetary control standard

costing enables the measurement of

performance In standard costing, standards are

determined 1st and then actual cost of

compared with standard cost. Budgetary

control system too helps in measuring

efficiency of all employees.

Conti.. Its Increase Efficiency of the business:

Management accounting increases efficiency of the business concern. The targets of different departments of the enterprise are determined in advance and the achievement of these goals is taken as a tool for measuring their efficiency.

Maximum profits of can be obtained: In this process every possible effort are made to control unnecessary expenses. The incapability or inefficiency is removed. New systems or techniques are found out to achieve the goal, so that there may be maximum profits out if the capital invested in the Business.

Limitations of Management

Accounting Lack of knowledge: For taking a sound

decision it is necessary that the management must have knowledge of various fields like accounting, statistics, economics, taxation, production, engineering and so on.

Lack of continuity and Co-ordination: In order to make the conclusions drawn by management accountant meaningful, they must be implemented in the organisation at various levels. But in actual practice they loose their significance because it is not feasible to implement such conclusions.

CONTI…

Lack of objectivity: There are every possibility

of personal bias and manipulations from the

collection of data to the interpretation stage in

financial accounting. Thus, it looses objectivity

and validity.

Costly: The Installment of management

accounting system in a concern requires large

organisation and a wide net work of rules and

regulations and thus requires a heavy

investment.

CONTI…

It is based on Financial Accounting:

Whatever information the management

according gets, They are of the financial

accuracy of the management decisions is based

on the correctness of these information. If

financial data is not reliable then management

accounting will not provide correct analysis. this

effectiveness limited to the reliability of those

sources.

Similarities Between Management

accounting and Financial accounting

Both financial and managerial accounting methods

present the general health of a business.

Financial accounting reports are more formal and

have a strict format for presentation to external

stakeholders. Managerial accounting reports are

more informal since they are used in-house. But

even with these differences, both methods allow

the reader to make a conclusion on the health of

the business, allowing them to make financial

decisions that must be made.

Difference Between Management

accounting and Financial accounting

1. Financial accounting is used to generate reports and

statistics to detail a company's financial health to

external interests.

Managerial accounting is completed for internal

stakeholders, such as the management team.

2. These external parties include stockholders, silent

partners and mortgage holders.

This information would be used to determine sales

prices, employee bonuses, raises for employees and

other general operation decisions

Conti…Topics &

No.

Financial Accounting Management Accounting

1. Meaning The process of recording,

summarizing and reporting the

myriad of transactions from a

business, so as to provide an

accurate picture of its financial

position and performance

The process of preparing

management reports and

accounts that provide accurate

and timely financial and statistical

information required by

managers to make day-to-day

and short-term decisions.

2.

Objectives

The main objectives of financial

accounting are to disclose the end

results of the business, and the

financial condition of the business

on a particular date.

The main objective of managerial

accounting is to help

management by providing

information that is used to plan,

set goals and evaluate these

goals.

3. Optional It is legally required to prepare

financial accounting reports and

share them with investors.

Managerial accounting reports

are not legally required

Conti..4. Segment

Reporting

Pertains to the entire

organization. Certain figures

may be broken out for

materially significant business

units.

Pertains to individual

departments in addition to the

entire organization.

5. Focus Financial accounting focuses on

history; reports on the prior

quarter or year.

Managerial accounting focuses

on the present and forecasts for

the future.

6. Format Financial accounts are reported in

a specific format, so that different

organizations can be easily

compared.

Format is informal and is on a

per department/company basis

as needed.

7. Rules Rules in financial accounting are

prescribed by standards such as

GAAP or IFRS. There are legal

requirements for companies to

follow financial accounting

standards.

Managerial accounting reports

are only used internally within the

organization; so they are not

subject to the legal requirements

that financial accounts are.

Conti…8. Reporting

frequency and

duration

Defined - annually, semi-annually,

quarterly, yearly.

As needed - daily,

weekly, monthly.

9. InformationMonetary, verifiable information.

Monetary and company

goal driven information.

References/Sources

Accounting for Managers by Dr. Sakshi Vasudeva Galgotia

Publishing Company Chapter 14 Management Accounting an

Introduction page no. 417

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