sub:MA
unit:1
By:Baral's commerce
concept, meaning and characteristics of Mgt. accounting
Management Accounting:
Management accounting is comprised of two words 'Management and Accounting. It Means the study of managerial aspect of accounting. The emphasis of management accounting is to redesign accounting in such a way that it is helpful to the management in formation of policy, control of execution and appreciation of effectiveness.
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Definition of Management
Robert Anthony: "Management Accounting is concerned with accounting information which is useful to management."
🔰🔰 Nature/Characteristics of Management Accounting
1.Based on Accounting Information: Management accounting is based on accounting
information.Management accounting is a service function and it provides necessary
information to different levels of management. Management accounting involves the
presentation of information in a way that suits the managerial needs.
2. Cause and Effect Analysis: The role of financial accounting is limited to find out the
ultimate result, i.e., profit and loss, whereas management accounting goes a step further.
Management accounting discusses the cause and effect relationship. The reasons for the
loss are probed and the factors directly influencing the profitability are also analyzed.
Profits are compared to sales, different expenditures, current assets, interest payables,
share capital, etc. to give meaningful interpretation.
3. Use of Special Techniques and Concepts: Management accounting uses special
techniques and concepts according to necessity, to make accounting data more useful.
The techniques include financial planning and analyses, standard costing,
budgetary control, marginal costing, project appraisal etc.
4. helps in Taking Important Decisions: It gives necessary information to the
management which may be useful for its decisions. The historical data is studied to see
its possible impact on future decisions. The implications of various decisions are also
taken into account.
5. Aims at Achieving Objectives: Management accounting uses the accounting information
so that it helps in formatting plans and setting up objectives. Comparing
actual performance with targeted figures will give an idea to the management about the
performance of various departments. incase of deviations, corrective measures
can be taken
6. No Fixed Norms: No specific rules are followed in management Accounting. Though the tools are the same, their use differs from concern
to concern. The deriving of conclusions also depends upon the intelligence of the
management accountant. The presentation will be in the way which suits the concern
most.
7. Improves Efficiency: The purpose of using accounting information is to increase
efficiency of the concern. The performance appraisal will enable the management to
pin-point efficiency and inefficiency spots. Efforts are made to take corrective measures so that efficiency can be improved.
8. Delivers Information and not Decision: Management accountant is only to guide to take
decisions. The data is to be used by the management for taking various decisions. How
to utilize the data will depend upon the caliber and efficiency of the management.
9. Involved in Forecasting: The management accounting is concerned with the future. It
helps the management in planning and forecasting. The historical information is used to plan future course of action.
🔰🔰 Scope of Management Accounting
management accounting has the following scope
1. Financial Accounting: Management accounting is mainly concerned with the
rearrangement of the information provided by financial accounting. Hence, management
cannot obtain full control and coordination of operations without a properly designed
financial accounting system.
2. Cost Accounting: Standard costing, marginal costing, opportunity cost analysis,
differential costing and other cost techniques play a useful role in operation and controll
of the business undertaking.
3. Revaluation Accounting: This is concerned with ensuring that capital is maintained
intact in real terms and profit is calculated with this fact in mind.
4. Budgetary Control: This includes framing of budgets, comparison of actual performance
with the budgeted performance, computation of variances, finding their causes, etc.
5. Inventory Control: It includes control over inventory from the time it is acquired till its
final disposal.
6. Statistical Methods: Graphs, charts, pictorial presentation, index numbers and other
statistical methods make the information more impressive and intelligible.
7. Interim Reporting: This includes preparation of monthly, quarterly, half yearly income
statements and the related reports, cash floW and funds flow statements, scrap reportS,
etc.
8. Taxation: This includes computation of income in accordance with the tax laws, filing of
returns and making tax payments.
9.Office Services: This includes maintenance of proper data processing and other office
management services, reporting on best use of mechanical and electronic devices.
10. Internal Audit: management accounting ensures an internal audit system in the organization
🔰Objectives of Management Accounting
The main objectives of management accounting are as follows:
1. 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 programme of activities. Management accounting can help greatly
in this direction.
2. helps in 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 a way that it is easily understood. It presents accounting information
with the help of statistical devices like charts, diagrams, graphs, etc.
3. 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
analyzed and thus it provides a base for taking sound decisions.
useful tool for managerial control.
4. Controlling:
Management accounting tools like standard costing and budgetary control are helpful in
controlling performance. Cost control is effected through the use of standard costing and
departmental control is made possible through the use of budgets. Performance of each
and every individual operation is controlled with the help of management accounting.
5. 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 performances of various departments are regularly monitored
and reported to the top management.
6. Facilitates Organizing: management accounting emphasizes more on responsibility
centres with a view to control costs and fixation of responsibilities, so it also facilitates
decentralization to a greater extent. Thus, it is helpful in setting up effective and efficient
organization framework.
7. Facilitates Coordination of Operations: Management accounting provides tools for
overall control and coordination of business operations.
8.Helping Forecasting the Future: Forecasting helps decision-making and answering questions,
such as: Should the company invest in more equipment? Should it diversify into different
markets? Should it buy another Company? Management accounting helps in answering
these critical questions and forecasting the future trends in business.
9.Helping in Make-or-Buy Decisions: Is it cheaper to procure materials or a product
from a third party or manufacture them in-house? Cost and production availability are
the deciding factors in this choice. Through management accounting, insights will be
developed which will enable decision-making at both operational and strategic levels.
