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Bba ii cost and management accounting u 5 management accounting


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Bba ii cost and management accounting u 5 management accounting

  1. 1. Management Accounting
  2. 2. Introduction :  Accounting is the language of business employed to communicate the financial information to various parties who are interested in the information. Accounting can broadly be classified into three categories.  Financial accounting  Cost accounting  Management accounting
  3. 3. Meaning  Management accounting is concerned with accounting information that is useful to management.  The process of identifying, measuring, analyzing, interpreting, and communicating information for the pursuit of an organization's goals.
  4. 4. Conti…  The key difference between managerial and financial accounting is that managerial accounting information is aimed at helping managers within the organization make decisions. In contrast, financial accounting is aimed at providing information to parties outside the organization.
  5. 5. Characteristics and Nature of Management Accounting :  Helpful in Decision Making:-It is an important feature of management accounting. In fact, it helps the management of organization by providing relevant and accurate information from various sources (like financial and cost accounting) in order to make sound decisions to remove business problems.
  6. 6. Conti…..  Provides Data, Not the Decision:- It only provides required data and information to the management, not the decision.  Assist in Achieving Objectives:- Management Accounting is always assist organization in achieving its predetermined goals. Because it provides detailed information in regarding the weakness and the strength of organization in the form of report,
  7. 7. Conti..  Related to Future:- Management Accounting is an accounting system which is directly related to future course of events. It means by preparing this account any organization can forecast its future on the basis available information in relating the past events.  Use of Special Techniques:- Management Accounting uses special tools or techniques (like standard costing, budgetary control, control accounting, marginal costing etc) for composing the accounting information and data more accurate and relevant.
  8. 8. Functions or Objectives of Management Accounting :  Planning and forecasting – Information and date provided by management accounting helps management to forecast and prepare short-term and long term plans for the future activities of the business and formulate corporate strategy.  Financial analysis and interpretation: In order to make accounting data easily understandable, the management accounting offers various techniques of analyzing, interpreting and presenting this data in non-accounting language so that every one in organization understands it. Ratio analysis, cash flow and funds flow statements trend analysis, etc., are some of the management accounting techniques which may be used for financial analysis and interpretation.
  9. 9. Conti…  Qualitative information: Apart from monetary and quantitative data, management accounting provides qualitative information which helps in taking better decisions. Quality of goods, customers and employees, legal judgments, opinion polls, logic, et, are some of the expels of qualitative information supplied and used by the management accounting system for better management.
  10. 10. Conti..  Decision – Making: Correct decision making is crucial to the success of a business. Management accounting has certain special techniques which help management in short team and long term decisions. For example, techniques like marginal costing, differential costing, discounted cash flow, etc., help in decisions such as pricing of products, make or buy, discontinuance of a product line, capital expenditure, etc.
  11. 11.  Furnishes Relevant data : Management accounting furnishes the Relevant data and information in way required by the management to assist them in taking and controlling various decesion.  Controlling: Controlling is a very important function of management and management accounting helps in controlling performance by control techniques such as standard costing, budgetary control, control rations, internal audit, etc.
  12. 12. Need and Importance of M.A :  Determine of Aim: Management accounting on the basis of the information available determines its goal and tries to find out the route through which it can reach the goal.  Helps in the Preparation of Plan: Present age is the age of planning. That producer is considered as most successful producer who produces articles according to the plan and needs of the consumers.
  13. 13. Conti….  Better Services to Customers: The cost control device is management accounting enables the reduction in prices of the Product. All employees in the concern are made cost Conious.  Easy to take judgment: Before taking any plan or to determine policy. There are several plans or policies before the management on the basis of the study he decides which plan and policy was to be adapted so that it may be more useful and helpful.
  14. 14. Conti..  Measurements of performance: The techniques of budgetary control standard costing enables the measurement of performance In standard costing, standards are determined 1st and then actual cost of compared with standard cost. Budgetary control system too helps in measuring efficiency of all employees.
  15. 15. Conti..  Its Increase Efficiency of the business: Management accounting increases efficiency of the business concern. The targets of different departments of the enterprise are determined in advance and the achievement of these goals is taken as a tool for measuring their efficiency.  Maximum profits of can be obtained: In this process every possible effort are made to control unnecessary expenses. The incapability or inefficiency is removed. New systems or techniques are found out to achieve the goal, so that there may be maximum profits out if the capital invested in the Business.
  16. 16. Limitations of Management Accounting  Lack of knowledge: For taking a sound decision it is necessary that the management must have knowledge of various fields like accounting, statistics, economics, taxation, production, engineering and so on.  Lack of continuity and Co-ordination: In order to make the conclusions drawn by management accountant meaningful, they must be implemented in the organisation at various levels. But in actual practice they loose their significance because it is not feasible to implement such conclusions.
  17. 17. CONTI…  Lack of objectivity: There are every possibility of personal bias and manipulations from the collection of data to the interpretation stage in financial accounting. Thus, it looses objectivity and validity.  Costly: The Installment of management accounting system in a concern requires large organisation and a wide net work of rules and regulations and thus requires a heavy investment.
  18. 18. CONTI…  It is based on Financial Accounting: Whatever information the management according gets, They are of the financial accuracy of the management decisions is based on the correctness of these information. If financial data is not reliable then management accounting will not provide correct analysis. this effectiveness limited to the reliability of those sources.
  19. 19. Similarities Between Management accounting and Financial accounting  Both financial and managerial accounting methods present the general health of a business.  Financial accounting reports are more formal and have a strict format for presentation to external stakeholders. Managerial accounting reports are more informal since they are used in-house. But even with these differences, both methods allow the reader to make a conclusion on the health of the business, allowing them to make financial decisions that must be made.
  20. 20. Difference Between Management accounting and Financial accounting 1. Financial accounting is used to generate reports and statistics to detail a company's financial health to external interests. Managerial accounting is completed for internal stakeholders, such as the management team. 2. These external parties include stockholders, silent partners and mortgage holders. This information would be used to determine sales prices, employee bonuses, raises for employees and other general operation decisions
  21. 21. Conti… Topics & No. Financial Accounting Management Accounting 1. Meaning The process of recording, summarizing and reporting the myriad of transactions from a business, so as to provide an accurate picture of its financial position and performance The process of preparing management reports and accounts that provide accurate and timely financial and statistical information required by managers to make day-to-day and short-term decisions. 2. Objectives The main objectives of financial accounting are to disclose the end results of the business, and the financial condition of the business on a particular date. The main objective of managerial accounting is to help management by providing information that is used to plan, set goals and evaluate these goals. 3. Optional It is legally required to prepare financial accounting reports and share them with investors. Managerial accounting reports are not legally required
  22. 22. Conti.. 4. Segment Reporting Pertains to the entire organization. Certain figures may be broken out for materially significant business units. Pertains to individual departments in addition to the entire organization. 5. Focus Financial accounting focuses on history; reports on the prior quarter or year. Managerial accounting focuses on the present and forecasts for the future. 6. Format Financial accounts are reported in a specific format, so that different organizations can be easily compared. Format is informal and is on a per department/company basis as needed. 7. Rules Rules in financial accounting are prescribed by standards such as GAAP or IFRS. There are legal requirements for companies to follow financial accounting standards. Managerial accounting reports are only used internally within the organization; so they are not subject to the legal requirements that financial accounts are.
  23. 23. Conti… 8. Reporting frequency and duration Defined - annually, semi-annually, quarterly, yearly. As needed - daily, weekly, monthly. 9. Information Monetary, verifiable information. Monetary and company goal driven information.
  24. 24. References/Sources  Accounting for Managers by Dr. Sakshi Vasudeva Galgotia Publishing Company Chapter 14 Management Accounting an Introduction page no. 417
  25. 25. Thank U