SCOPE and APPLICATION of

COST & MANAGEMENT ACCOUNTING

PRESENTED BY

AHMED SAYEM,
Associate Professor Dept. of IPE, SUST.

MANAGEMENT ACCOUNTING -Meanings

Accounting for the management. It provides necessary information to assist the management in the creation of policy and in day today operations. It enables the management to discharge all its functions.

DEFINITION:
1. According to R.N. Anthony:

Management accounting is concerned with accounting information's to the management

2. American Council of productivity:

Management accounting is the presentation of accounting in such a way to assist the management in the creation of policy and in day today operations of an undertaking

OBJECTIVES of Management Acc

To assist the management in promoting efficiency. To prepare budgets covering all functions of a business. To analyse monetary & non monetary transactions. To compare the actual performance with plan & identifying variations and its causes. To interpret the financial statements to formulate future policies. To submit the results to the management at frequent intervals. To provide a suitable organisation for discharging responsibilities. To arrange systematic allocation of responsibilities for the implementation of plans & budgets.

SCOPES of Mgt. Acc

The scope of management accounting is very wide.It includes all aspects of business operations. The following areas indicating scope of management accounting.

Financial accounting: It provides historical information. It forms basis for future securing full control & coordination of a business.

Cost accounting: It provides various techniques of costing. It assisting the mgt in the formulation of policies & the operations of the undertakings.

Budgetary

control:

It helps to compare the actual performance with budgeted performance,measuring variations finding out their causes & suggesting remedial measures.
Inventory

control:

It is concerned with control over inventory from the time it is received till its disposal.
Reporting:

It includes preparation of periodical income statements & other related reports like fund flow statements & cash flow statements.These statements helps to the management to evaluation of performance & decision making.

 Statistical methods:

Statistical tools like graphs,charts,index numbers etc.are used for presentation of information to various departments.
Taxation: It includes preparation of income statement,assessing the effect of tax on capital expenditure, proposal & pricing. Internal audit: This refers to the establishment of a suitable internal audit system for internal control. Office services: They cover a wide range of activities like data processing,filing, copying, printing, communication etc.

Decision-making
Deals

with whether it is more profitable to make or buy a component, determine the economic order quantity and production batch size, replace fixed asset, add or drop products, decide pricing.

Application
Cost

accounting has extended from manufacturing operations to a variety of service industries such as hotels, bands, airline, etc
accounting system should be flexible and adaptable to meet the new business environment and the changing nature of the company

Cost

FUNCTIONS:
Functions of management accounting. It includes all activities connected with collecting,processing,interpreting and presenting information to the management.main functions are listed below:
Forecasting: Making short term & long term forecast and planning the future operations of the business. Organising: Organising human & physical resources of the business.it is done by assigning specific responsibilities to different people. Co-ordinating: Providing different tools of coordination like budgeting,financial reporting,financial analysis and budgetary control.

Controlling: controlling performance by using standard costing, variance analysis and budgetary control.

Analysing and interpreting:

Analysing and interpreting of data in a simple and purposeful manner.

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.

Difference between Management accounting & Financial accounting

Objective Performance

Analysis

Data

Used Nature Accuracy Legal Compulsion Monetary Transactions Control

Difference between management accounting and financial accounting

Management accounting Management accounting is to provide information for internal use of the management.(Depts.,Mgt) It analyses the performance and profitability of each department.(Individually) It is mainly concerned with future plans and policies. It is based on judgment and more subjective.

Financial accounting Financial accounting is to provide information for external use of the management(Sh.hol,Crs,Govt). It is concerned with overall performance of the concern.(Totally) It is mainly concerned with recording of past transactions. It is based on measurement and more objective.

Approximations are widely used.Because most of the information is related to the future and intended for internal use. Preparation of accounts is optional. It records both monetary as well as non monetary events called technical changes, government policies. It reveal the deviations of actual and budgeted.It will also indicate the causes for such deviations

Accuracy is an important factor. Because all the information is related to the past and intended for external use. It is compulsory for all joint stock companies. It records only those transactions which can be expressed in terms of money. It will not reveal whether plans are properly implemented.

Difference between Cost accounting and management accounting.

Objective Scope Data

used Nature

Difference between Cost accounting and management accounting.

Cost accounting
The ascertainment and control of costs of products and services It deals primarily with cost data.It includes the process of accumulation, classification,analysis and recording.The scope of cost accounting is limited.

management accounting
The supply of information to the management to take decisions,planning and control. It deals with both cost and revenue.It includes financial,cost,budgeting, reporting,to management and interpretation of financial data. The scope of management accounting is wider.

In cost accounting only those transactions which can be expressed in figures are taken.i.e.quantitative aspect is recorded in cost accounting. Cost accounting uses both past and present figures.

In management accounting the transactions which can be expressed in figures and values are taken. i.e.Both quantitative and qualitative aspects are recorded in management accounting. Management accounting is concerned with the projection of figures for future