Management accounting

To assist the management in promoting efficiency. Efficiency includes best possible services to customers, investors and employees.
To prepare budgets covering all functions of a business (i.e, production, sales, research and finance).
To analyze monetary and non-monetary transactions.
To compare the actual performance with plan for identifying deviations and their causes.
To interpret financial statement to enable the management to formulate future policies.
To submit to the management at frequent intervals operating statements and short term financial statements.
To arrange for the systematic allocation of responsibilities.
To provide a suitable organization for discharging the responsibilities.

1. MANAGEMENT ACCOUNTING Dr.C. Sahila ., Ph.D Assistant professor of Commerce SRM IST

2. MEANING The term management accounting refers to accounting for the management. Management accounting provides necessary information to assist the management in creation of policy and in the day – to- day operations. It enables the management to discharge all its functions i.e., planning, organization, staffing, direction and control efficiently with the help of accounting information.

3. DEFINITION The Institute of Cost and Management Accountants London has defined, “Management Accounting as the application of professional knowledge and skill in the preparation of accounting information in such a way as to assist management in the formulation of policies and the planning control of the operation of the undertakings.” According to R. N. Anthony, “Management Accounting is concerned with accounting information that is useful to management.”

4. OBJECTIVES OF MANAGEMENT ACCOUNTING To assist the management in promoting efficiency. Efficiency includes best possible services to customers, investors and employees. To prepare budgets covering all functions of a business ( i.e , production, sales, research and finance). To analyze monetary and non-monetary transactions. To compare the actual performance with plan for identifying deviations and their causes.

5. CONT… To interpret financial statement to enable the management to formulate future policies. To submit to the management at frequent intervals operating statements and short term financial statements. To arrange for the systematic allocation of responsibilities. To provide a suitable organization for discharging the responsibilities.

6. SCOPE OF MANAGEMENT ACCOUNTING 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. Cost Accounting: Standard costing, marginal costing, opportunity cost analysis, differential costing and other cost techniques play a useful role in operation and control of the business undertaking.

7. Budgetary Control: This includes framing of budgets, comparison of actual performance with the budgeted performance, computation of variances, finding of their causes, etc. Inventory Control: It includes control over inventory from the time it is acquired till its final disposal. 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. Statistical Methods: Graphs, charts, pictorial presentation, index numbers and other statistical methods are used for presentation of information to various departments. Taxation: This includes computation of income statement in accordance with the tax laws, filing of returns and making tax payments. Methods and Procedures: They deal with organizational methods for cost reduction, procedures for improving the efficiency of accounting and office operations.

9. Office Services: This includes maintenance of proper data processing and other office management services, reporting on best use of mechanical and electronic devices. Internal Audit: Development of a suitable internal audit system for internal control.

10. FUNCTIONS OF MANAGEMENT ACCOUNTING The main functions of management accounting are: Forecasting: Making short- term and long-term forecasts and planning the future operations of the business. Organizing: Organizing the human and physical resources of the business. This is done by assigning specific responsibilities to different people.

11. Co-ordinating: Providing different tools of co-ordination. Examples of such tools are budgeting, financial reporting, financial analysis, interpretation etc. Controlling: Controlling performance by using standard costing, variance analysis and budgetary control. Analysis and Interpretation: Analysis and Interpreting financial data in a simple and purposeful manner.

12. Communicating: Communicating the results of business activities through prompt and accurate reporting system. Economic Appraisal: Appraising of social and economic forces and government policies and interpreting their effect on business.

13. ADVANTAGES OF MANAGEMENT ACCOUNTING Helps in decision making Helps in planning Helps in organizing Facilitates Communication Helps in Co-ordinating Evaluation and Control of performance Interpretation of financial information Economic Appraisal

14. LIMITATIONS OF MANAGEMENT ACCOUNTING Based on accounting information Management accounting derives information from past financial and cost accounting records. If the past records are not reliable, it will affect the effectiveness of management accounting. Wide scope It has a very wide scope incorporating many disciplines. This results in inaccuracy and other practical difficulties.

15. Costly The installation of management accounting system requires a large organization. Hence, it is very costly and only big concerns can afford to adopt it. Evolutionary stage Management accounting is still in its initial stages. Tools end techniques are not fully developed. This creates doubts about the utility of management accounting. Opposition to change Introduction of management accounting system requires a number of changes in the organization structure, rules and regulations. This rearrangement is not generally liked by the people involved.

16. Intuitive decision It helps in scientific decision making. Yet, because of simplicity and personal factors the management has a tendency to arrive at decisions by intuition. Not an alternative to management It will not replace the management and administration. It is a tool of the management. Decisions are of the management and not of the management accountant.

17. DISTINCTION BETWEEN FINANCIAL ACCOUNTING & MANAGEMENT ACCOUNTING Basis Financial Accounting Management Accounting 1. Objective Recording , Classifying and Summarizing Financial transactions To deliver various information to managers. 2. Users External parties mainly Investors, Creditors. Internal parties (Managers) 3. Importance It is less important , as it is related to operational activities It is more important. As it is related with managerial activities. 4. Accounting Principles It provides information on the basis of “Generally Accepted Accounting” Principles. It does not adhere to any such principle.

18. 5. Information It provides historical information. It provides future information based upon historical data. 6. Compulsory Vs Optional It is compulsory as per Companies Act. It is entirely optional. 7. Methodology Under this transactions are recorded on the basis of double entry system. In MA after collection & analysis of information, it is divided between cost centres and responsibility centre. 8. Accuracy More accuracy Less accuracy 9. Reporting Annual reporting Reporting as per requirement.

19. DISTINCTION BETWEEN MANAGEMENT ACCOUNTING & COST ACCOUNTING Basis Management Accounting Cost Accounting 1. Nature It is concerned with formulation of policies, improvement of productivity and profitability. It is concerned with cost ascertainment and cost control. 2. Subject-matter It involves considerations of both cost and revenue data. It deals primarily with cost data 3. Part It is not a part of Cost Accounting. It is a part of Management Accounting.

20. 4. Tools It involves- Ratio analysis , fund flow and cash flow statements, budget, budgeting, BEP, standard costing It involves- unit cost, job costing, process costing, operating costing, contract costing, and standards costing. 5. Qualification MBA, CA and ICWAI ICWAI (members), CA 6. Audit Auditing is not compulsory for management accounting. Auditing is compulsory for cost accounting. 7. Expenses Allocation In management accounting expenses are allocated into two part fixed and variable. In Cost accounting expenses are allocated as – Direct cost and Indirect cost.