*Management Accounting is helpful in *Describe the necessity of Financial
The process of preparing management decision making-discuss the statement. Statement Analysis. reports and accounts that provide accurate Managerial accounting information provides 1. Holding Of Share: Shareholders are the and timely financial and statistical data-driven input to these decisions, which can owners of the company. The financial information required by managers to improve decision making over the long term. statement analysis is important as it provides make day to day and short time decisions is called Management Accounting. Small business managers can leverage this meaningful information to the shareholders in powerful tool to help make their business more taking decisions. Unlike financial accounting, which successful by understanding how management 2. Decisions And Plans: The management of produces annual reports mainly for accounting benefits common business decision the company is responsible for taking external stakeholders, management contexts. decisions and formulating plans and policies accounting generates monthly or weekly Relevant Cost Analysis for the future. They, therefore, always need to reports for an organization's internal Managerial accounting information is used by evaluate its performance and effectiveness of audiences such as department managers and the chief executive officer. These company management to determine what their action to realise the company's goal in reports typically show the amount of should be sold and how to sell it. For example, the past. For that purpose, financial statement available cash, sales revenue generated, a small business owner may be unsure where analysis is important to the company's amount of orders in hand, state of he should focus his marketing efforts. management. accounts payable and accounts receivable, Activity-based Costing Techniques 3. Extension Of Credit: The creditors are the outstanding debts, raw material and Once the company has determined what providers of loan capital to the company. inventory, and may also include trend products to sell, the business needs to Therefore they may have to take decisions as charts, variance analysis, and other statistics. determine to whom they should sell the to whether they have to extend their loans to products. By using activity-based costing the company and demand for higher interest *Explain the role of Management techniques, small business management can rates. The financial statement analysis Accounting in Planning and control in determine the activities required to produce and provides important information to them for a bank. service a product line. their purpose. A basic objective of managerial Make or Buy Analysis 4. Investment Decision: The prospective accounting is to improve the effectiveness A primary use of managerial accounting investors are those who have surplus capital of both the management planning and information is to provide information used in to invest in some profitable opportunities. control functions. Plans should be manufacturing. By completing a make or buy Therefore, they often have to decide whether developed on the same information base analysis, she can determine which choice is to invest their capital in the company's share. as the mechanisms of control. Planning more profitable. The financial statement analysis is important depends on the same reporting and control Utilizing the Data to them because they can obtain useful mechanisms that make central oversight Managerial accounting information provides a information for their investment decision possible and decentralized management data-driven look at how to grow a small making purpose. feasible. Building the mechanism of business. Budgeting, financial statement control on one data base (financial projections and balanced scorecards are just a *Describe the Limitations of Financial accounting) and the planning process on few examples of how managerial accounting Statement Analysis. another (program analysis) places too information is used to provide information to Although financial statement analysis is great a burden on the management system help management guide the future of a highly useful tools, it has limitations also. as the intermediary. Managerial company. The limitations involve the comparability of accounting involves in the formulation of financial data between companies and the financial estimates of future performance *Shortcomings of traditional methods of need to look beyond ratios. (the planning and budgeting processes) credit analysis. and, subsequently, the analysis of actual 1. Past financial performance, good or bad, is Comparison of one company with another performance in relation to those estimates not necessarily an accurate predictor of future can provide valuable clues about the financial (program evaluation and control). performance. health of an organization. 2. Financial statements do not tell you about *Explain the role of Management changes in senior management. The analyst should keep in mind the lack of Accounting in a bank. 3. Financial statements do not tell you about the comparability of the data before drawing any OR loss of major customers. definite conclusion. Comparisons of key *Management Accounting is beneficial 4. Financial statements do not tell you about the ratios with other companies and with industry for banking operation - comments with competitive environment in which the company average often suggest avenues for further the example. operates. investigation. 1. Collection, Classification, Analysis and 5. Financial statements do not disclose the Presentation of Financial data companys future prospects, or the results of its *Describe briefly the uses of Financial 2. Systematic and reliable planning expenditures on Research and Development. Statement Analysis. 3. Ascertainment, Reduction and Control 6. The more out-of-date a customer financial Analysis of the statement of financial position of cost 4. Product Pricing statements are, the less reliable they are as a referred to as a balance sheet analysis, reports 5. Measurement of work performance risk management tool. on a companys assets, liabilities, and 6. Preparation of statement of cost and ownership equity at a given point in time. other necessary statement 1. A financial statement analysis provides 7. Preparation of Master Plan of information on the operation of the enterprise. Development of Industry These include sale and the various expenses 8. Role of Financial Management in incurred during the processing state. Industry 9. Forward looking 2. Financial statement analysis gives 10. Efficiency Analysis information about the changes in equity 11. Helping in decision making which helps to explain the changes of the companys equity throughout the reporting period. 3. Financial statement analysis provides information about cash flows which helps to prepare report on companys cash flow activities, particularly it operating, investing and financial activities.
*Compare and Contrast between
Management Accounting and Financial Accounting.
The differences between management
accounting and financial accounting include: 1. Management accounting provides information to people within an organization while financial accounting is mainly for those outside it, such as shareholders. 2. Financial accounting is required by law while management accounting is not. Specific standards and formats may be required for statutory accounts such as in the I.A.S International Accounting Standard within Europe. 3. Financial accounting covers the entire organization while management accounting may be concerned with particular products or cost centers. Contrast Format: Fin. Acc: Financial accounts are supposed to be in accordance with a specific format by IAS so that financial accounts of different organizations can be easily compared. Man. Acc: No specific format is designed for management accounting systems. Planning and control: Fin. Acc: Financial accounting helps in making investment decision, in credit rating. Man. Acc: Management Accounting helps management to record, plan and control activities to aid decision- making process. Focus: Fin. Acc: Financial accounting focuses on history. Man. Acc: Management accounting focuses on future. Users: Fin. Acc: Financial accounting reports are primarily used by external users, such as shareholders, bank and creditors. Man. Acc: Management accounting reports are exclusively used by internal users viz. managers and employees. External Vs. Internal: Fin. Acc: A financial accounting system produces information that is used by parties external to the organization, such as shareholders, bank and creditors. Man. Acc: A management accounting system produces information that is used within an organization, by managers and employees.