Management accounting

1. MANAGEMENT
ACCOUNTING
-An Introduction
Dr.S.BELLARMIN DIANA
ASSISTANT PROFESSOR
PG & RESEARCH DEPARTMENT OF MANAGEMENT STUDIES
BON SECOURS COLLEGE FOR WOMEN, THANJAVUR.

2. INRODUCTION
Accounting
Financial
Accounting
Cost Accounting
Management
Accounting
Accounting serves the purpose of providing financial information relating a business.
Such information is provided to people who have an interest in the organization
On the basis of type of accounting information and the purpose for which such
information is used, accounting may be divided into three categories:

3. Financial Accounting
Financial accounting is mainly concerned with recording
business transactions in the books of accounts for the purpose
of presenting final accounts, i.e.,
 Profit & Loss account - showing the net profit or loss
the period
 Balance Sheet - showing the financial position of the firm at
point of time.
The objective of financial accounting is to provide information
to external parties such as shareholders, creditors, employees,
potential investors, government agencies, etc.

4. Cost Accounting
Cost accounting is a branch of accounting which specializes in
providing information about the detailed cost of products or
services being supplied by the undertaking.
The information supplied by cost accounting acts as a tool of
management for making optimum use of scarce resources and
ultimately-add to the profitability of business.
Cost accounting information is mainly for internal use i.e.
management. It is not to be provided to external parties such as
shareholders, creditors, potential investors, etc.

5. Management Accounting
It is concerned with all such accounting information that is
useful to management.
In simple words, the term management accounting is applied to
the provision of accounting information for management
activities such as planning, controlling and decision-making,
etc. It serves as a decision support system to all levels of
management.

6. DEFINITION
According to National Association of Accountants
(USA), management accounting is "the process of
identification, measurement, accumulation, analysis,
preparation and communication of financial information
by management to plan. evaluate and control within the
organization and to assure appropriate use and
for its resources.

7. DEFINITION
In the words of Robert Anthony, "Management
accounting is concerned with accounting information
is useful to management.“
The Institute of Cost and Works Accountants of
(ICWAI) has defined management accounting as "a
system of collection and presentation of relevant
information relating to an enterprise for planning,
controlling and decision making."

8. OBJECTIVES
To assist the management in promoting efficiency
To prepare budgets covering all functions of a business
To analyze monetary and non-monetary transactions
To compare the actual performance with plan for identifying
deviations and their causes

9. OBJECTIVES
To interpret financial statements to enable the management to
formulate future policies
To submit to the management at frequent intervals operating
statements and short-term financial statements.
To arrange for the systematic allocation of responsibilities
To help the management in making decisions and implementing
them efficiently

10. CHARACTERISTICS
The aim of management accounting is to assist management in decision making
Management accounting derives basic accounting information from financial
and cost accounting
The information provided by management accounting is used by management
for internal use and its is not given to external parties
Its adoption by any firm is depends on its utility and desirability and there is no
statutory obligation
As it is concerned with decision making it is related with future course of action
There is no prescribed formats for presentation of information to management.
The study of cause and effect relationship is possible in management
accounting

11. SCOPE OF MANAGEMENT ACCOUNTING
For an effective and successful management accounting, there should
be a proper and well designed financial accounting system
The techniques of cost control and techniques of profit planning and
decision-making are used by the management accounting
Forecasting helps in the preparation of budgets and budgeting helps
management accountant in exercising budgetary control
Management accountant depends upon tax accounting and planning
to minimize its tax liabilities and save more funds for the business

12. SCOPE OF MANAGEMENT ACCOUNTING
For effective and timely decisions, there should be a system of prompt
and intelligent reporting to management
Management accounting is incomplete without effective cost control
procedures like inventory control, labour control, overhead control,
budgetary control, etc
Tools of analyzing and presenting 'statistical data like graphs, tables,
charts, etc., are used in preparing reports for use by the management

13. SCOPE OF MANAGEMENT ACCOUNTING
Management accountant heavily depends on internal financial
controls like internal audit and internal check to plug loop holes in
the financial system of the concern
Management accountant employs various techniques to analyze and
interpret financial data to make it understandable and useable to the
management
Management accountant is expected to maintain and control office
routines and procedures like filing, copying, communicating,
electronic data processing and other allied services

14. FINANCIAL ACCOUNTING VS MANAGEMENT ACCOUNTING
Accounting information is mainly
intended for external users
It is based on double entry
system
It is obligatory under company
law and tax law
It shows the profit or loss of the
business as a whole and does not
show the cost and profit for
individual products, process or
departments
Accounting information is
mainly meant for internal users
It is not based on double entry
system
It is optional
It provides detail information
about individual products,
plants or departments
FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING

15. FINANCIAL ACCOUNTING VS MANAGEMENT ACCOUNTING
It is concerned with recording transactions
which have already taken place
Financial reports are prepared usually on a
year to year basis
Financial accounts are prepared according
to accounting standards issued by ICAI
It prepares general purpose statements
which are used by external users
Financial statements are published for
general public and are required to be
audited by the Charted Accountants
It provides information in terms of money
only
It is future oriented and concentrates on what
is likely to happen in future.
Accounting reports are prepared frequently
It is not bound by accounting standards
It prepares special purpose reports which are
used by top level management
Accounting statements are neither published
for general public nor required to be audited
by the Charted Accountants
It may apply monetary and non-monetary
units of measurement
FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING

16. COST ACCOUNTING VS MANAGEMENT ACCOUNTING
It provides only cost information
The main emphasis is on cost
ascertainment and cost control to ensure
maximum profit
Evolution of cost accounting is mainly due
to the limitation of financial accounting
Maintenance of cost records has been
Management accounting is purely made
compulsory in selected industries as
notified by the Govt. from time to time
It provides cost as well as financial
accounting information
The main emphasis is on planning,
controlling and decision making to
maximize profit
Evolution of management accounting is
due to the limitations of cost accounting
Management accounting is purely
voluntary and its use depends upon its
utility to management
COST ACCOUNTING MANAGEMENT ACCOUNTING

17. COST ACCOUNTING VS MANAGEMENT ACCOUNTING
It is based on data derived from financial
accounts
In the organizational setup, cost
accounting is placed at lower level in
hierarchy than the management
accountant
Cost accounting system can be installed
without management accounting
Various techniques used by cost
accounting include standard costing and
variance analysis, marginal costing
andcost volume profit analysis, budgetary
control, uniform costing and inter-firm
comparison, etc.
It is based on data derived from cost accounting
and financial accounting and other sources
Management accountant is generally placed at
a higher level of hierarchy than the cost
accountant
Management accounting can not be installed
without a proper system of cost accounting
Management accounting also uses all these
techniques used in cost accounting but in
addition it also uses techniques like ratio
analyses funds flow statement, statistical
analysis and certain techniques from
various branches of knowledge
COST ACCOUNTING MANAGEMENT ACCOUNTING

18. TOOLS & TECHNIQUES
 Budgeting
 Standard costing and variance analysis
 Marginal costing and cost volume profit
analysis
 Ratio analysis
 Comparative financial statements
 Differential cost analysis
 Funds flow statements
 Cash flow statement
 Responsibility accounting
 Accounting for price level changes
 Statistical and graphical techniques
 Discounted cash flow
 Risk analysis
 Learning curve
 Value analysis
 Work study, etc

19. THANK YOU