Management Accounting- Nature And

Scope
Classification of Accounting

Fin. Accounting

Cost Accounting

Management Accounting

Financial Accounting Fin. Acc is concerned with

recording, classifying and summarising the business
transaction so that at the end of the year profit or loss
can be calculated and its effect on owned capital, assets
and liabilities can be ascertained.
Principles of Financial Accounting
A. Accounting Concepts
Business Entity Concept
Going Concern Concept
Money Measurement Concept
Cost Concept
Dual Aspect Concept
Realisation Concept
Accounting Period Concept
Matching Concept

B. Accounting Conventions : Convention of Consistency

Convention of Materiality and Disclosure
Convention of Conservatism
Limitations of Financial Accounting
o Change in Nature of Business
o Shift in Emphasis
o Provision of Historical Information
o Fails to meet the information needs of Different levels of
Management
o Consideration of only Monetary information
o Less Importance of Budgeting and Planning

Cost Accounting
Cost Accounting is the next stage in the development of
accounting. Under cost accounting total cost of goods and
the elements of total cost are studied.
Definition :ICWA London :- Cost Accounting is the technique and
process of ascertainment of costs.
Objectives of Cost Accounting
(1) Cost Determination
(2) To help Management in Cost Control
(3) To determine Selling Price
(4) To facilitate Management Decision Making

Management Accounting
Management needs detailed information on different aspects to
arrive at meaningful decisions. Financial accounting provides
some informations but these are not adequate. Management
accounting removes these limitations of financial accounting.
Thus, management accounting means- Accounting for
Management to discharge its functions including organising,
planning, directing and controlling.
Definition :- According to American Accountng Association,
Management accounting includes the methods and concepts
necessary for effective planning, for choosing among
alternative business actions and for control through the
evaluation and interpretation of performance.
R.N. Anthony :- Management accounting is concerned with
accounting information that is useful to management

Functions of Management Accounting

1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)

Provides data
Modifies Data
Analysis and interpretation of data
Use of Qualitative Information also
To help in Planning
To help in Organising
To help in Motivation
To help in Co-ordination
Communication
To help in Control
To help in Decision Making

Scope of Management Accounting

Fin. Acc
Cost Acc

Interim
Reporting

Internal
Audit

Budgetary

Inventory

Scope of
Mgt Acc

Statistical

Revaluation
Taxation
Acc

Distinction Between Management

Accounting and Financial Accounting
Mgt Accounting

Objectives :- To help mgt in

planning & decision-making. It is
an Internal reporting system.
2.

3.

4.
5.

Subject Matter :- It reveals the

profitability or performance or
different departments products
etc in detail.
Nature of Data used :- Mgt Acc
uses detailed, statistical,
relative, past and future data
and information.
Periodicity :- Small intervals
and quick information.
Accuracy :- Need not to be
completely accurate.

Fin. Accounting
1.
Provides
information
to
creditors, shareholders, banks,
investors, govt. It is an external
reporting system.
2.
Fin acc deals with the overall
position of business because fin.
Statements explain the position
the position of business in
totality.
3.
Fin acc presents monetary
information of historic events
and transactions.
4.
Long time period.
5.

Completely accurate.

Mgt. Accounting
6.
Compulsion
:
Mgt
Accounting is voluntary
and
has
no
legal
compulsion.
7. Legal Formalities :- There
is no legal form or rules
for the statements or
reports
under
mgt
accounting.
8. Monetary Transactions :Mgt
acc.
Records
financial
and
nonfinancial information.

Fin. Accounting
6. Fin. Acc is necessary for
every business due to
legal provisions.
7.

Fin.
Accounts
are
prepared
under
the
provisions of Company
act, 1956.

8. Fin. Acc records only

those transactions which
can e expressed in
money form

Distinction between Cost Accounting and

Management Accounting
Cost Accounting
1.
Objective : to determine the
cost and control it.

2.

Subject Matter :- Cost

accounting deals mainly with
cost data

3. Scope :- Cost accounting

provides information relating
to cost of products only , so
its scope is narrow.

Mgt Accounting
1.
Mgt
Acc
helps
the
management in decision
making through cost and
financial information.
2.
Mgt acc considers both cost
and income aspects.

3.

Mgt acc has a wide scope as

it collects information from
fin. Acc, cost acc and
busine4ss finance.

Utility of Management Accounting

1.
2.
3.
4.

5.

It helps the mgt in effective planning and decisionmaking.

Mgt accounting helps the mgt in control through
budgetary control, standard costing, marginal costing.
Reporting system of management accounting helps in
establishing co-ordination.
Management accounting helps in creating cost centre
and profit centres and establishing internal audit and
internal control systems for these centres.
Communication plays most important role in decision
making and management accounting helps in this
regard through its reporting system.

Limitations of Management Accounting

1.
2.
3.
4.
5.
6.
7.

Limitations of Cost and Financial Accounting

System
Persistence of Intuitive Decision
Wider Scope
Costly System
Psychological Resistance
Evolutionary
It is not Alternative to Management

Techniques of Management Accounting

i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.

Analysis of Financial Statements

Ratio Analysis
Fund Flow Statement
Cash Flow Statement
Marginal Costing and Cost-volume Profit Analysis
Budgetary Control and standard costing
Management Reporting
Statistical Techniques
Value Added Statement
Accounting Price Level Changes
Human Resource Accounting