Management Accounting Concept

8/2/2019 Management Accounting Concept

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Management Accounting

To quote J. Batty, Management Accountancyis the term used to describe the accountingmethods, systems and techniques, which

coupled with special knowledge and ability,assists management in its tasks ofmaximizing profits or minimizing losses.

Thus, it is the accounting to assist themanagement in planning and decision-making.


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Functions

1. Provides Data

2. Modifies Data

3. Analyses & Interprets Data4. Serves as a Means of Communicating

5. Facilitates Control

6. Uses also Qualitative Information


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Scope

Financial Accounting

Cost Accounting

Budgetary Control Inventory Control

Internal Audit

Interim Reporting


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Utility/Significance

1. Planning

2. Controlling

3. Coordinating4. Organizing

5. Motivating

6. Communicating


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Limitations

1. Limitation Of basic Records

2. Persistent Efforts

3. Management Accounting is only a tool4. Wide scope

5. Opposition to change

6. Top heavy structure


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Tools of Management Accounting

Financial statement analysis Ratio analysis

Fund flow statement

Cash flow statement Costing techniques-Marginal costing,

differential costing, standard costing, CVP

analysis and variance analysis Budgetary control


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Role of Management Accountant

A great variety of accounting information is available to

managers. The accountant chooses the information to be reported to a manager by:

Identifying the purpose for which the information is needed.

Determining the relevance of the information.

The accountant has to identify the specific purpose for which cost accounting

information is required by the manager. Information is relevant if it

Affects the accomplishment of the objectives of the decision maker.

Will change as a result of the decisions or choice made by the decision

maker.

Historically, the Management Accountant was known as Controller since

he/she was in charge of all financial accounting and cost accounting functions.

Line managers are directlyresponsible for attaining this objective as efficiently

as possible.

When a departments primary task is to advise and serve other departments in

the organization, it is a staff department.


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Cost accounting

The Chartered Institute of Management Accountants,U.K. (CIMA) defines costingas the technique andprocess of ascertaining costs.

Costing is a tool to determine the cost of products orservice.

Cost accounting analysis and classification of costsor expenditure.

Cost accountancy application of costing and costaccounting principles.


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Functions of Cost Accounting

To compute product-wise profit

To serve the management in the valuation

of W-I-P

To install and implement cost controlsystems

To advice management for future

expansion

To guide the management in thepreparation and implementation of

incentive schemes based on productivity

and cost savings.


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Financial Accounting

The functions of financialaccounting are concerned with

that of bookkeeping, i.e.

maintenance of records of costs,

debtors, and creditors, etc.

As per the company law

requirements, the company has to

maintain the accounts for theiradoption by the shareholders in

the Annual General Meeting.


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Limitations ofFinancial Accounting

Financial accounting doesnt aims at continuousreporting of financial data, which the cost accountingdoes

Financial accounts will not reveal the data by jobs,process, products, etc.

It provides only historical data, and it would be too latefor any corrective action.

It does not provide data for adequate control overmaterials, labour, and overheads.

In financial accounting, there are no systems to setpredetermined estimates, standards, or budgets.


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Cost accounting Vs Management

accounting

Primary objectives

Time factor

Governing principles Statutory verification

Data used

Inter-dependence


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Financial accounting Vs Management

accounting

Objectives

Analyzing performances

Data used

Monetary management Periodicity of reporting

Nature

Legal compulsion


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Financial Accounting vs.

Cost Accounting Purpose

Forms of Accounts

Recording

Items of Costs Analysis ofProfits

Control

Periodicity

Nature of Transaction Inventory Valuation

Figures

Documents

Management Accounting Concept