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Introdcution to management accounting
- 1. Management Accounting Chapter I Nature and scope
- 2. Accounting?
- 3. The present age is the age of trade business and commerce. After Globalization, liberalization, and privatization, business is increasing day by day and becoming complex also. An organization cannot remember all its dealing for long. Therefore, it becomes necessary to keep written record of all business transactions day by day, this lead to the development of accounting. Let us understand the meaning of basic accounting.
- 4. Definition of Accounting According to Committee of Terminology of American Institute of Certified Public Account – “Accounting is the art of recording, classifying summarising in a significant manner and in terms of money, transaction, and events which are, in part at least of a financial character and interpreting the results thereof.”
- 6. Financial accounting is the process of preparing financial statements that companies’ use to show their financial performance and position to people outside the company, Including investors, creditors, suppliers, and customers.
- 8. Cost accounting is the classifying, recording and appropriate allocation of expenditure for the determination of the costs of products or services, and for the presentation of suitably arranged data for purposes of control and guidance of management. It includes the ascertainment of the cost of every order, job, contract, process, service or unit as may be appropriate. It deals with the cost of production, selling and distribution.
- 10. Meaning of Management Accounting Management Accounting is the presentation of accounting information in such a way as to assist management in the creation of policy and the day-to-day operation of an undertaking. Thus, it relates to the use of accounting data collected with the help of financial accounting and cost accounting for the purpose of policy formulation, planning, control and decision-making by the management. Management accounting links management with accounting as any accounting information required for taking managerial decisions is the subject matter of management accounting.
- 11. Definition of Management Accounting “Management Accounting is concerned with accounting information that is useful to management.” —R.N. Anthony “Management Accounting is the term used to describe accounting methods, systems and techniques which coupled with special knowledge and ability, assists management in its task of maximising profits or minimising losses. Management Accountancy is the blending together into a coherent whole, financial accounting, cost accountancy and all aspects of financial management.” —Batty
- 12. “Management accounting is a system of collection and presentation of relevant economic information relating to an enterprise for planning, controlling and decision-making.” —ICWA of India Management Accounting is “the application of appropriate techniques and concepts in processing historical and projected economic data of an entity to assist management in establishing plans for reasonable economic objectives and in the making of rational decisions with a view towards these objectives”. —American Accounting Association
- 13. Example Anderson is the CEO of a small consulting firm. He wants to hire a management accountant and a financial accountant. He has come up with a list of job tasks and he needs to break them up into those that should be performed by the managerial accountant and those that should be performed by the financial accountant. Here is the list of tasks that Anderson has come up with: Preparing cash flow statements Income statement reporting Budgeting Calculating changes in stockholder equity Preparing taxes for the organization Classify the managerial accountant tasks and financial accountant tasks?
- 14. Nature of Management Accounting It may be regarded partly as a Science and partly as an Art. It is the science of quantifying and summarising. It is the art of interpreting accounting data.
- 15. Providing financial information Cause and effect analysis Technique of Selective Nature Decision making No fixed conventions Achievement of objectives Improving efficiency Forecasting Characteristics of Management Accounting
- 16. Scope of Management Accounting Financial Accounting Cost Accounting Budgeting and forecasting Inventory control Statistical analysis Analysis of data Internal Audit Tax accounting Tax and procedures
- 17. Objectives and functions of Management Accounting Presentation of data Aid of planning and forecasting Help in organization Decision making Effective control Communication of management policies Incorporation of non-financial information Co-ordination Motivating employees
- 18. Distinction between Financial and Management Accounting Purpose Nature of information used Help in organization Decision making Effective control Communication of management policies Incorporation of non-financial information Co-ordination Motivating employees
- 19. Management Accounting Purpose: It is used for internal purpose Regulation: It is not regulated by any law Users: Its users are the management of an organization Objective: It aids in internal decision making Mandatory: Preparation and presentation of financial statements is not mandatory Audit: It is not subject to audit Frequency: There is no defined frequency for preparation and presentation of the statements Contents: Management accounts include both monetary and non- monetary information Financial Accounting Purpose: It is used for external reporting primarily, although the management also reviews it Regulation: It has to be presented as per standards Users: Its users are shareholders, investors and regulators Objective: It aids in investment decision by outsiders and monitoring by regulators Mandatory: Preparation and presentation is mandatory. Audit: Financial statements must be audited Frequency: Financial statements must be prepared for the financial year and presented Contents: Financial accounts include only monetary information
- 20. Cost Accounting • Meaning: The recording, classifying and summarising of cost data of an organization is known as cost accounting. Information type: Quantitative. Objective: Ascertainment of cost of production. Scope: Concerned with ascertainment, allocation, distribution and accounting aspects of cost. Specific Procedure: Yes Recording: Records past and present data Planning: Short range planning Interdependency: Can be installed without management accounting. Management Accounting Meaning: The accounting in which the both financial and non-financial information are provided to managers is known as Management Accounting. Information type: Quantitative and Qualitative. Objective: Providing information to managers to set goals and forecast strategies. Scope: Impart and effect aspect of costs. Specific Procedure: No Recording: It gives more stress on the analysis of future projections. Planning: Short range and long range planning Interdependency: Cannot be installed without cost accounting.
- 21. Tools and Techniques of Management Accounting Financial policy and Accounting Analysis of financial statement Historical cost accounting Budgetary control Standard costing Marginal costing Other tools Decision accounting Revaluation accounting Control accounting MIS
- 22. Advantages/Merits/Uses of Management Accounting Increase in efficiency Effective planning Performance evaluation Profit maximization Reliability Elimination of wastages Effective communication Employee morale Control and co-ordination
- 23. Limitations of Management Accounting Dependence of basic records Personal bias MGT accounting is only a tool It provides only data Broad based scope Resistance to change Costly to install
- 24. Installation of Management Accounting System Organization Manual Preparation of various forms and reports Requisite staffing Classification of accounts Setting up of cost centers Introducing techniques Providing for usage of operations research
- 25. Functions of Management Accountant Planning for control Reporting Evaluation Administration of tax Appraisal of external effects Protection of assets
- 26. Duties of Management Accountant Collection of information Evaluation of information Interpretation of information Reporting of information
- 27. Organization of Management Accounting Managing Director Production Finance Chief Mgt Accountant Mgt Controller Budget controller Internal Auditor Credit Controller Marketing Personnel