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MANAGEMENT

ACCOUNTING

INTRODUCTION
Management accounting or managerial accounting is
the process of identifying, analyzing, recording and
presenting financial information that is used for
internally by the management for planning, decision
making and control.
In contrast tofinancial aacounting, managerial
accounting is concerned with providing helpful
information and reports to internal users such as
managers and entrepreneurs etc. so that they can
control and plan the business activities.

NATURE OF MANAGEMENT ACCOUNTING

Nature of management accounting guides to know main


characteristics of management accounting. Following are main
points which shows the nature of management accounting:
No Fixed Norms Followed: In financial accounting, we follow different
norms and rules for creating ledgers and other account books. But there is
no need to follow fixed norms in management accounting. Management
accounting tool may be different from one organization to other
organization.
Increase in Efficiency: It is the nature of management accounting that it
is used for increasing in the efficiency of organization. It scans the points
of inefficiency through analysis of accounting information.

Supplies Information not Decisions: Management accountant


supplies accounting facts and information and also provides
interpretation, but decision making is fully dependent on higher
authorities. Management accounting is just guide.

Concerned with Forecasting:It is the temperament of


management accounting that it is fully concerned with
forecasting. In management accounting, historical accounting
information is analyzed through common size financial statement,
ratio analysis, fund flow analysis and accounting data tendency
for knowing the probability of next fact.

SCOPE OF
MANAGEMENT
ACCOUNTING
The scope or field of management accounting is very wide and broad
based and it includes a variety of aspects of business operations. The
main aim of management accounting is to help management in its
functions of planning, directing, controlling and areas of specialization
included within the admit of management accounting. The scope of
management accounting can be studied as follows:
Financial Accounting
Financial accounting forms the basis for analysis and interpretation for
furnishing meaningful data to the management.
Cost Accounting
Cost accounting is the process and techniques of ascertaining cost.
Planning, decision making and control are the basic managerial functions.

Budgeting And Forecasting


Budgeting means expressing the plans, policies and goals of the
firm for a
definite period in future. Forecasting on the other hand, is a
prediction of
what will happen as a result of a given set of circumstances.
Inventory Control
Inventory is necessary to control from the time it is acquire till its
final disposal
as it involves large sum. For controlling inventory, management
should
determine different level of stock. The inventory control technique
will be
helpful for taking managerial decisions.

FUNCTIONS OF MANAGEMENT ACCOUNTING

The functions of managerial accounting include:


Margin analysis. Determining the amount ofprofitor cash flowthat a
business generates from a specific product, product line, customer,
store, or region.
Breakeven analysis. Calculating the mix ofcontribution marginand unit
volume at which a business exactlybreak even, which is useful for
determining price points for products and services.
Constraint analysis. Understanding where the principle bottlenecks are
in a company, and how they impact the ability of the business to earn
revenues and profits.
Target costing. Assisting in the design of new products by accumulating the \
costs of new designs, comparing them totarget costlevels, and reporting this
information to management.

LIMITATIONS OF MANAGEMENT ACCOUNTING

Though management accounting is helpful tool to the management


as it provides information for planning, controlling and decision
making, still its effectiveness is limited by a number of reasons.
Some of the limitations of management accounting are as follows:
Based On Accounting Information
Management accounting is based on data and information provided
by financial accounting and cost accounting.
Lack Of Knowledge
The use of management accounting requires the knowledge of
number of related subjects. Deficiency in knowledge in related subjects
like accounting principles, statistics, economics, principle of management
etc. will limit the use of management accounting.

Management Accounting Is Only A Tool


The tools and techniques of management accounting provide only
information and not decisions. Decisions are to be taken by the
management and implementation of decisions are also done by
management.

Evolutionary Stage
Management accounting is still in a development stage and has not
yet reached a final stage. The techniques and tools used by this
system give varying and differing results. It is still named as internal
accounting and/ or operational accounting.

DIFFERENCE BETWEEN
FINANCIAL & MANAGEMENT
ACCOUNTING
Management Accounting
Financial Accounting
Format:

Financial accountsare supposed to be No specific format is designed for


in accordance with a specific format by managementaccounting systems.
IAS so thatfinancial accountsof
different organizations can be easily
compared.

Planning and control:

Financial accounting helps in


makinginvestment decision,
increditrating.

Management Accounting helps


management to record, plan and
control activities to aid decisionmaking process.

External Vs. Internal:

Afinancial accounting system


produces information that is used by
parties external to the organization,
such as shareholders, bank and
creditors.

Amanagement accounting
systemproduces information that is
used within an organization, by
managers and employees.

Focus:

Financial accounting focuses on


history.

Management accounting focuses on


future.

Users:

Financial accounting reports are


Management accounting reports are
primarily used by external users, such exclusively used by internal users viz.
as shareholders, bank and creditors.
managers and employees.

department:

preparing financial accounting is the


work of finance department.

managerial accounting is not specific


task of particular department. coordiantion of all department creates
management accounting.

DIFFERENCE BETWEEN
COST & MANAGEMENT ACCOUNTING
Cost Accounting

Management Accounting

External Vs. Internal:

Cost Accounting is that branch


ofaccounting information systemwhich
records, measures and reports
information about costs.

Amanagement accounting
systemproduces information that is
used within an organization, by
managers and employees.

Time span:

Cost Accounting emphasizes on the


preservation of current years costing
reports.

No specific time span is fixed for


producing financial statements.

Objectives:

The primary purpose of the Cost


Accounting is cost ascertainment and
its use in decision-makingperformance
evaluation.

The main objectives of Management


Accounting are to help management
by providing information that used by
management to plan, evaluate, and
control.

Accounting process:

Cost Accounting preserves cost


accounts by maintaining doubleentryaccounting processif felt
necessary. Cost Ledger is used under
it.
Cost Accounting is mainly concerned
with the costing and provision of more
accurate cost data to the
management. The main focus of cost
accounting is costing, cost
assignment, costvariance analysis,
costing reports, budgeting, etc.

Cost accounts are not preserved under


Management Accounting but analyses
necessary data from financial
statements and cost ledgers.

Center of importance:

Management accounting uses cost


data for provision of information for
strategicmanagement decisions. It is
mainly concerned with the provision of
help to the managers to asses them in
the process of decision making.

MANAGEMENT ACCOUNTING USE


AS A TOOL FOR DECISION MAKING

Management accounting is fundamental in strategic


planning. When a business is looking to make a strategic
decision, for example, whether to develop a new product
line, acquire another business or expand into other
countries, the CIMA trained management accountant can
provide advice. They can use a number of tools to assist
decision-making. These include ratio analysis, budgets
and forecasts (such as cash flow and variances).

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