MANAGEMENTACCOUNTING BY DHRUBA CHAKRABORTY MBA-HM 1ST SEM
INTRODUCTION TO ACCOUNTINGACCOUNTING is the art ofrecording classifying andsummarizing in a significantmanner and in terms ofmoney transactions whichare of financial characterand interpreting the resultsthere of.ACCountInG Is CAllED “tHElAnGuAGE oF BusInEss” tHAtserves as a means ofcommunication.
Accounting Information SystemProcess of gathering, organizing, andCommunicating financial information Financia l Stateme nts
History of accountingmanagementManagement accountingdeveloped to meetmAnAGEmEnt’s nEEDs Forinformation as complexityand uncertainty increasedwith geographical expansionand product diversification
Peter Drucker , In “tHE EmErGInGtHEory oF mAnuFACturInG,” mADEthe comment:“tHE most ExCItInG AnD InnovAtIvE workin management today is found inaccounting theory, with new concepts,new methodology --even what might becalled new economic philosophy --rapidly taking shape. And while thereis enormous controversy over specifics,the linaments of the newmanufacturing accounting areBEComInG ClEArEr EvEry DAy.”
MANAGEMENT ACCOUNTINGAccounting thatconcentrates on reportingto people inside the businessentity is called“mAnAGEmEnt ACCountInG” .provide information toemployees, managers,owner-managerand auditors.Management accounting isconcerned with accountinginformation which is usefulto management.
REQUIREMENT OF MANAGEMENT ACCOUNTING Business owners use ManagementAccounting to track, record and reportfinancial information for managerialreview.Management accounting does notusually follow any national accountingstandards.Business owners can design managementaccounting systems according to theircompany, business operations ormanagement and need for businessinformation.
FUNCTIONS OF MANAGEMENTACCOUNTINGModification of data:-Accounting data are not suitable for managerialdecision-making and control purposes . they may be usedfor making future estimates and projections.Management accounting modifies the availableaccounting data by rearranging the same , by resortingto a process of classification and combination.Analysis and data interpretation:-Accounting data is analyzed and interpreted foreffective planning and decision making . the data ispresented in a comparative form . analytical tools (trendpercentages , raTIO ANALYSIS) ARE USED AND LIKELY TRENDSARE PROJECTED. ContD…….
FACILITATING MANAGEMENT CONTROL:-STANDARDS OF PERFORMANCE AND MEASURE OF VARIATION ARETHE ESSENTIAL ELEMENTS OF ANY CONTROL SYSTEM.ALL THESE AREMADE POSSIBLE THROUGH STANDARD COSTING AND BUDGETORYCONTROL SYSTEMS, WHICH ARE AN INTEGRAL PART OF MANAGEMENTACCOUNTING.USE OF QUALITATIVE INFORMATION:-FINANCIAL DATA AND ITS ANALYSIS ARE NOT SUFFICIENT FORDECISION MAKING .MANAGEMENT NEED QUALITATATIVEINFORMATION WHICH MAY BE OBTAINED FROM ENGINEERINGRECORDS , CASE STUDIES ETC.SATISFYING ALL LEVEL OF MANAGEMENT:- VARIOUS LEVELS OF MANAGEMENT NEED DIFFERENT TYPESOF INFORMATION.FOR TOP MANAGEMENT need CONCISEINFORMATION , MEDIUM need TECHNICAL DATA REGULARLYAND LOWER LEVEL ARE INTERESTED IN DETAILED FIGURESRELATING TO THE PARTICULAR SPHERE OF ACTIVITY AT SHORTINTERVALS.
ADVANTAGES OF MANAGEMENT ACCOUNTING Reduce Expenses: Management accounting help companies lower their operational expenses. Business owners often use management accounting information to review the cost of economic resources and other business operations. This information allows owners to better understand how much money it costs to run the business. Improve Cash Flow: Budgets is a major part of management accounting. Business owners often use budgets so they have a financial road map for future business expenditures. The main purpose of budgets is to save the company money through careful analysis of necessary and unnecessary cash expenditures.
Business Decisions: Management accounting often improves thebusiness decision-making process. Rather thanmaking business decisions based solely onqualitative analysis, business owners ormanagers can use management accountinginformation as a decision-making tool. Managementaccounting usually provides a quantitativeanalysis for various decision opportunities.Increase Financial Returns:Business owners can also use managementACCountInG to InCrEAsE tHEIr CompAny’s FInAnCIAlreturns. Management accountants can preparefinancial forecasts relating to consumer demand,potential sales or the effects of consumer pricechanges in the economic marketplace.
Relationship of management accountingwith cost and financial accounting FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING DRAWS OUT INFORMATION FROM FINANCIAL AND COST ACCOUNTING MODIFY SAME FOR COST MANEGERIAL USE. ACCOUNTING
Distinctions between MANAGEMENT ACCOUNTING and FINANCIAL ACCOUNTING OBJECTIVE: MANAGEMENT ACCOUNTING IS PRIMARILY AN INTERNAL REPORTING SYSTEM AND FINANCIAL ACCOUNTING IS EXTERNAL REPORTING SYSTEM. SUBJECT MATTER: MANAGEMENT ACCOUNTING PROVIDES DETAILED ANALYTICAL DATA FOR MANAGERIAL USE. FINANCIAL ACCOUNTING DEALS WITH THE OVERALL POSITION OR PERFORMANCE OF THE BUSINESS. NATURE OF DATA USED: MANAGEMENT ACCOUNTING CONCERNED WITH THE FUTURE INFORMATION.FINANCIAL ACCOUNTING CONCERNED WITH MONETARY RECORDS OF PAST EVENTS. contd…..
PERIODICITY OF REPORTING: FINANCIAL STATEMENTS ARE PREPARED AT END OFACCOUNTING YEAR . GREATER EMPHASIS LAID INMANAGEMENT ACCOUNTING FOR QUICK INFORMATION ATSHORT INTERVALS.ELEMENTS OF COMPULSION: FINANCIAL ACCOUNTING HAS MORE OR LESS BECOMECOMPULUSORY OR STATUTORY FOR EVERY BUSINESS. BUTA BUSINESS IS FREE TO INSTALL OR NOT INSTALL SYSTEMOF MANAGEMENT ACCOUNTING.FLEXIBILITY: ELEMENTS OF COMPULSION SHOWS THAT MANAGEMENTACCOUNTING IS HIGHLY FLEXIBLE OR LESS RIGID INAPPROACH AS COMPARED TO FINANCIAL ACCOUNTING.
Distinctions between managementaccounting and cost accounting cost management accounting accounting Concerned with all such Concerned with cost matters in a wider control , cost perspective which help ascertainment & tools management in policy like budgetary control, formation , improve standard costing etc. productivityprofitability. Primarily deals It consider both cost with cost data. and revenue.
Limitations of accountingmanagementBased on Accounting Information:Mgt Accounting is based on data of Financial and Cost Accounting.Historical data is used to make future decisions. The correctness andeffectiveness of managerial decisions will depend upon the quality ofdata on which these decisions are based. If financial data is not reliablethen Mgt Accounting will not provide correct analysis.Lack of Knowledge:The application of Mgt Accounting will be useful to person connectedwith Decision making process as they have proper understanding of MgtAccounting and related subjects such as Statistics, Economics, Principlesof Mgt, Engineering etc.Intuitive decision :In Mgt Accounting decision making based on facts and figures, there is atendency to make decisions intuitively. Mgt may avoid lengthy courses ofdeciding things and may take an easy course of arriving at decision, usingintuitive. This makes management accounting system a waste. contd….
Limitations of accounting managementNot an alternative to Administration:The tools and techniques of Mgt Accounting provide onlyinformation and not decision. Decisions and their implementationsare done, by Mgt. So it has supplementary service function andhas no final say in taking decisions and their implementations.Top heavy structure:Introduction of this system is costly affair and can be used by bigconcerns only. Smaller concerns cant afford to use this systembecause of heavy cost.Psychological Resistance:The Installation of Mgt Accounting involves basic changes inorganizational setup. New rule and regulations are to be framedwhich affect a number of personnel and hence there is apossibility of resistance
Role of management accounting Provide accounting information to the management to perform its function effectively. Modify available relevant information for effective planning and decision making. Provide tools like budgetary control , standard costing etc. which helps management. Effective coordination could be achieved through departmental budgets and reports contd……
CommunicationContd… is an important role of management which involves transmission of data, information, results etc. to both outsider and insider . decision of top management to be communicated to middle and lower level managements and the results and requirement should be reported to top level management. Results have to be reported to shareholders, creditors , investors who wIsH to know ABout CompAny’s FInAnCIAl position and progress.
Management Accountant’s RoleasInternal Consultant:- Collects Prepares and compiles standardized information reports Internal Consultant Interprets and Is InvolvedAnalyzes information In decision making Management
Planning, Controlling &decision making:-Planning: Setting Control:objectives and Implementing plansoutlining how the and using feedback toobjectives will be evaluate theobtained. attainment of objectives . Example:-Example:- BUDGET Performance report which are accounting report provide feedback by comparing actual results with plansDecision making: the purposeful choicefrom among a set of alternative coursesof action designed to achieve some objective.Example:-Deciding selling price of a product
Standards of EthicalConduct for ManagementAccountantsCompetenceConfidentialityIntegrityObjectivity
Major Influences on Management Accounting Advances in technology: E-commerce Enterprise resource planning (ERP) Business process reengineering: Just-in-time (JIT) philosophy Lean manufacturingComputer-integrated manufacturing Six sigma
Career Opportunities in Management AccountingThe Certified Management Accountant (CMA)CMA must pass a four- part examination:1. Business Analysis2. Management accounting and reporting3. Strategic Management4. Business Applications