Section: B

Management accounting

Management Accounting
Management Accounting is concerned with accounting information that is useful to management. R. N. Anthony Management Accounting is the application of appropriate techniques and concepts in processing historical and projected economic data of an entity to assist management in establishing plans for reasonable economic objectives and in making of rational decisions with a view towards these objectives. American Accounting Association

Scope of Management Accounting

Information provided by Financial Accounting Information provided by Cost Accounting Budgeting or Forecasting Cost Control Procedures Reporting Methods and Procedures Tax Accounting Internal Financial Control Interpretation

Objectives (Role) of Management Accounting

Assistance in planning and formulation of future policies Assistance in interpretation f financial information Assistance in controlling Assistance in organizing Assistance in strategic decision-making Assistance in coordinating operations Assistance in motivating employees Assistance in evaluating efficiency and effectiveness of policies Communicating information

Functions of Management Accounting

Forecasting and Planning Organizing Coordinating Controlling Financial Analysis and Interpretation Communication Assistance in Pricing decisions etc.

Difference between Financial and Management Accounting

Objective Nature Compulsion Interested Parties Methodology Precision Publication Audit Description

Difference between Cost and Management Accounting

Objective Inter-relation Role Outlook Tools and Techniques Scope Period of Planning Approach Dependence

Financial Statements
Financial Statements are the organized summaries of detailed information about operating results and financial position of the concern. These are prepared at the end of accounting period and include: P & L and Balance Sheet Boards Report with respect to companys affairs, reserve, proposed dividend, any material change etc. Directors Responsibility Statement (regarding authenticity and due compliance of accounting norms) Management Discussion and Analysis (covering SWOT analysis for company)

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Report on Corporate Governance (covering composition of board of director, details of meeting, shareholder information, auditors certificate on corporate governance etc.) Auditors Report Cash Flow Analysis Notes and Annexure related to financial statement Types: Annual Financial Statements, Quarterly Financial Reports and Segment Reports

Financial Analysis
Financial analysis concerns with the use of financial data in the evaluation of current and past performance of an enterprise and to assess its sustainability in future. Importance: It is primarily used for taking decisions regarding security analysis, analysis of credit worthiness, credit analysis, debt analysis, dividend decision, mergers, take-over, amalgamation and general business analysis.

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Limitations: Ignorance of Qualitative Aspect and non-financial information Based on Historic data Possibility of manipulation Ignores inflation/ deflation Intuitive Decisions Lack of Objectivity Costly Psychological Resistance Not a substitute of administration

Tools of Financial Analysis

Comparative Statements Common-size Statements Trend Analysis Ratio Analysis Fund Flow Analysis Cash Flow Analysis