Ch-1 (A) This method is pause during or at the end of a lecture or discussion.pptx

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1. Chapter – one (A) Overviews of Cost and Management Accounting

2. 2 Introduction Information has probably become the most valuable resource in modern business . The primary purpose of accounting is to provide relevant , credible and sufficient information used by decision makers (individuals , entities , government and the society at large) to make sound decisions and plays an important role in our economy and the social system.

3. 3 Accounting information addresses three different functions: Providing information to external parties (such as; stockholders, and creditors) for investment and credit decisions . 2. Estimating the cost of products produced and services provided by the organization; and 3.Providing information useful to internal managers who are responsible for planning, controlling, decision making, and evaluating performance

4. Cost Accounting Cost accounting is an accounting information system that records, measures and reports information about cost . Cost accounting is, thus, concerned with recording, classifying and summarizing costs for determination of costs of products or services, planning, controlling and reducing costs and furnishing of information to management for decision making . 4

5. Cost accounting is defined as "a systematic set of procedures for recording and reporting measurements of cost of manufacturing goods and performing services in the aggregate and in detail . Cost accounting is a bridge between financial and management accounting. It provides information to both management accounting and financial accounting. 5

6. Objectives of Cost Accounting 1. Ascertainment of the cost per unit of the different products that a business concern manufacturers . 2. To correctly analyse the cost of both the process and operations . 3. Provide necessary data and help in fixing the price of products manufactured or services rendered . 4. Determination of the profitability of each products and help management in the maximization of these profits. 6

7. 5.Present and interpret data for management planning, decision-making, and control 6. Help in the preparation of budgets & implementation of budgetary control . 7. To provide specialized services for cost audit in order to prevent errors and frauds 8. To facilitate prompt & reliable information to management 7

8. 8 Management Accounting Management accounting is a segment of accounting that deals specifically with how accounting data and other financial information can be used in the management of business, governmental or non-profit entities. Management accounting is “ a field of accounting that provides both economic and non-economic information that helps organization (managers) to control their day to day operational activities and make better decisions.”

9. 9 “ Management accounting as, the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial (and non financial) information used by management to plan, evaluate, and control within the organization and to assure appropriate use and accountability for its resources”

10. Objectives of Management Accounting The fundamental objective of management accounting is to assist the management in carrying out its duties efficiently so that maximize profits or minimize losses. \ To formulate planning and policy 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 . 10

11. It makes available the relevant data after pruning and analyzing them suitably for effective planning and decision-making. To interpret financial documents Management accounting is to present financial information to the management in such away that it is easily understood using statistical devices like charts, diagrams, graphs, etc. 11

12. To assist in decision-making process Management accounting makes decision-making process more scientific with the help of various modern techniques . To help in control Management accounting tools e.g. standard costing and budgetary control are helpful in controlling performance . 12

13. To provide report 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. 13

14. 14 Financial Accounting Financial accounting is designed to meet external information needs and to comply with the International Financial Reporting Standards/IFRS /. Financial accounting is the process that ends in the preparation of financial reports on the enterprise for use by both internal and external parties. The users of Financial accounting information are investors, creditors, managers, unions, and government agencies etc.

15. 15 Objectives of Financial Accounting To summarize the operational result of a business entity for a particular specified period showing a profit or loss . Presenting the net change in the net assets of that enterprise based on the operational results. Reflecting the financial position of the business entity at a specific date. Presenting economic (financial) information based on historical data to external users for decision making.

16. 16 Distinctions between the accounting disciplines To satisfy the needs of all interested parties, a sound accounting system is very important (necessary) . Financial accounting is primarily concerned with the preparation of financial statement , which summarizes the results of operation for selected period of time and show the financial position of an entity at a particular date. A financial accountant is mainly serving external parties

17. 17 Cost accounting is primarily concerned with determination of cost of something , which may be a product, service, a process or an operation. It refers to the accounting procedures relating to recording of expenditure and the preparation of periodical statements and reports with the object of determining and controlling costs.

18. 18 A cost accountant has an obligation to providing cost data for whatever purposes for both external reporting and internal reporting. Management accounting involves collecting, analyzing, interpreting and presenting all accounting information , which is useful to the management .

19. 19 A cost accountant has an obligation to providing cost data for whatever purposes for both external reporting and internal reporting. Management accounting involves collecting, analyzing, interpreting and presenting all accounting information , which is useful to the management .

20. 20 It provides the information to management so that planning, organizing, directing and controlling of business operations can be done in an orderly manner. MA has a wider scope as compared to CA. Cost accounting primarily deals with cost data while management accounting involves the considerations of both cost and revenue.

21. 21 Areas of comparison Management Accounting Financial Accounting Report format Flexible format, driven by user’s Based on IFRS Purposes of reports Provide information for planning, control, performance measurement and decision making Report on past performance Primary users Employees , Managers Owners , lenders, customers, government agencies…etc. Units of measurement Historical or future dollars, physical measure in time or names of objects, or non-monitory events Historical dollars Nature of information Future oriented, objective for decision making, more subjective for planning relies on estimates Historical objective (oriented) Frequency of reports Prepared as needed, may or may not be a regular basis or a regular basis minimum of once Prepared on a regular basis (minimum of once) a year Legal compulsion As the judgment of management Compulsory Comparison between Financial and Management accounting

22. 22 ……End….