Ntre,Scope Accntng Mngmnt

7/30/2019 Ntre,Scope Accntng Mngmnt

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Nature or characteristics of management accounting:

1. Forecasting: It is not confined only to the collection of historical data or facts but also

attempts to highlight upon What should have been.

2. Supply information: It provides information to the management and not decision.

3. Increase in efficiency: It is basically concerned with the problem of choice.4. Techniques and concepts: It uses special techniques and concepts to make accounting

data more useful.

5. Cause and effect analysis: It attempts to examine the cause and Effect of different

variables. This may be the reason that management accounting is called as science.

6. No fixed norms: No set of rules and formats like double entry system of book keeping.

7. Assists management: It assists management in several ways in its functions but does

not replace it.

8. Achieving of objectives: The principal objective is to serve the needs of

management.

SCOPE OF MANAGEMENT ACCOUNTINGManagement accounting is concerned with presentation of accountinginformation in the most useful way for the management. Its scope is,therefore, quite vast and includes within its fold almost all aspects of businessoperations. However, the following areas can rightly be identified as fallingwithin the ambit of management accounting:(i) Financial Accounting: Management accounting is mainly concernedwith the rearrangement of the information provided by financialaccounting. Hence, management cannot obtain full control and

coordination of operations without a properly designed financialaccounting system.

(ii) Cost Accounting: Standard costing, marginal costing, opportunitycost analysis, differential costing and other cost techniques play auseful role in operation and control of the business undertaking.(iii) Revaluation Accounting: This is concerned with ensuring that capitalis maintained intact in real terms and profit is calculated with this fact inmind.(iv) Budgetary Control: This includes framing of budgets, comparison ofactual performance with the budgeted performance, computation ofvariances, finding of their causes, etc.(v) Inventory Control: It includes control over inventory from the time it isacquired till its final disposal.(vi) Statistical Methods: Graphs, charts, pictorial presentation, indexnumbers and other statistical methods make the information moreimpressive and intelligible.(vii) Interim Reporting: This includes preparation of monthly, quarterly,half-yearly income statements and the related reports, cash flow andfunds flow statements, scrap reports, etc.(viii) Taxation: This includes computation of income in accordance with the

tax laws, filing of returns and making tax payments.(ix) Office Services: This includes maintenance of proper data processing


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and other office management services, reporting on best use ofmechanical and electronic devices.(x) Internal Audit: Development of a suitable internal audit system forinternal control.

Objectives of management accounting;

The primary objective is to enable the management to maximize profits or minimize

losses.

The fundamental objective of management accounting is to assist management in their

functions.

The other main objectives are,

1. Planning and policy formulation: planning is one of the primary functions of

management. It involves forecasting on the basis of available information.

2. Help in the interpretation process: The main object is to present financial

information. The financial information must be presented in easily understandable

manner.

3. Helps in decision making: Management accounting makes decision making process

more modern and scientific by providing significant information relating to various

alternatives.

4. Controlling: The actual results are compared with pre determined objectives. The

management is able to control performance of each and every individual with the help of

management accounting devices.

5. Reporting: This facilitates management to take proper and timely decisions. It presents

the different alternative plans before the management in a comparative manner.

6. Motivating: Delegation increases the job satisfaction of employees and encouragesthem to look forward. so it serves as a motivational devise.

7. Helps in organizing: return on capital employed is one of the tools if managementaccounting. All these aspects are helpful in setting up effective and efficient organization.

8. Coordinating operations: It provides tools which are helpful in coordinating the

activities of different sections.

Functions of management accounting:The basic function of management accounting is to assist the management in performing

its functions effectively.The other functions are,

1. Modification of data: Accounting data as such are not suitable for managerial decision

making and control purposes. The modification of data in similar groups makes the data

more useful and understandable.

2. Planning and forecasting: under the process of planning, management formulates

policies and executes plans to achieve the desired objectives.

3. Financial analysis and interpretation: the accounting data is analyzed and interpreted

meaningfully for effective planning and decision making. The interpretation is most

important function of management accounting.

4. Communication: Management accounting is an important medium of communication.Different levels of management need different types of information.


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5. Facilitate managerial control: Management accounting enables all accounting efforts

to be directed towards the attainment of goals efficiently by controlling then operations of

the company more effectively.

6. Use of qualitative information: mere financial data and its analysis and interpretation

are not sufficient for decision making.

7. Decision making: management accounting supplies analytical information regarding

various alternatives and the choice of management is made easy.

8. Coordinating: coordination is the essence of managerial activity. It helps to increase

the efficiency of organizations.

Advantages of management accounting:

1. Helps in decision making:

Helps to make decisions like pricing, make or buy, acceptance of orders, selection of

product mix etc,.

2.Helps in planning:Planning includes profit, budget, capital investment and financing.

3.Helps in organizing:

It helps to develop organizational structure.

4.Facilitates communication:

It provides up to date information to evaluate the performance.

5.Helps in coordinating:It helps to coordinate the department activities and to achieve their goals.

6.Evaluation and control of performance:

It assists to find weak area to take corrective actions.

7.Interpretation of financial information:This will helps to quick decision making.

8.Economic appraisal:

It includes social and economic forces.

Limitations of management accounting:

1. Based on accounting information:

It considers only the past financial data so, its not reliable.

2. Wide scope:

It has wide scope so, the result will be inaccurate.

3. Costly;

It applied only big concerns.

4. Evolutionary stage:

Tools end techniques are not fully developed.

5. Opposition to change:

It requires number of changes in the organization.6. Intuitive decision:


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It helps to take scientific decision making.

7. Not an alternative to management:

It will not replace the management and administration.

Documents

Ntre,Scope Accntng Mngmnt