acma

1. Advanced Cost and Management Accounting
(MGT 521)
Semester I: MBA

2.  It is commonly termed as Accounting. The American Institute of Certified Public
Accountants defines Accounting as “an art of recoding, classifying and summarizing
in a significant manner and in terms of money, transactions and events which are in
part at least of a financial character, and interpreting the results thereof.”
 The first step in the cycle of accounting is to identify transactions that will find
place in books of accounts. Transactions having financial impact only are to be
recorded.
 Secondly, the recording of the business transactions is done based on the Golden
Rules of accounting in a systematic manner.
 Thirdly, as the transactions increase in number, it will be difficult to understand the
combined effect of the same by referring to individual records. Hence, the art of
accounting also involves the step of summarizing them. With the aid of computers,
this task is simplified in today’s accounting world.
 Lastly, the accounting process provides the users with statements which will
describe what has happened to the business.

3.  Cost accounting is that part of accounting which identifies, defines,
measures, reports and analyses the various elements of direct and
indirect costs associated with manufacturing and providing
goods/services.
 In the process of accumulating costs for inventory valuation and
income determination, the needs of external users and management
are fulfilled.
 It also provides management with an accurate, timely information for
planning, controlling, and company operations.

4. According to the Chartered Institute of Management
Accountants (CIMA), Cost Accountancy is defined as
“application of costing and cost accounting principles,
methods and techniques to the science, art and practice of
cost control and the ascertainment of profitability as well
as the presentation of information for the purpose of
managerial decision-making.”

5. Management Accounting is that branch of accounting which
deals with presenting and providing accounting information
to the management in a systematic way so that it can
perform its management functions of planning, controlling
and decision-making in an effective and efficient manner.

6.  According to American Accounting Association, 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”.

7. • Analysis & Interpretation of data
• Future-oriented
• Serves as a yardstick

8. Relationship Between Cost, Financial,
and Management Accounting
 Financial accounting and cost accounting represent the two parts of the accounting information
system of a business enterprise. These are similar on two counts. Firstly, operating information
is used in the preparation of financial as well as cost accounts. If an enterprise has two
completely different systems for collecting information for two purposes, it would Involve the
incurrence of extra costs.
 Secondly, the considerations which make Accounting Principles useful in financial accounting,
are equally relevant in cost accounting also. For example, management cannot base its
reporting system on non-verifiable, subjective estimates of profits because cost and revenue
concepts in financial accounting are based on the idea of objectivity.
 A cost accounting system provides data for both financial accounting and management
accounting. When costs are used by outsiders, such as shareholders or creditors, to evaluate
the performance of the management and make investment decisions, they are said to be used
for financial accounting purposes. On the other hand, when cost data are used inside the
organization to evaluate the performance of operations, activities, personnel, and so on, as the
basis of decision making, they are said to be used for management accounting purposes.

9.  Cost accounting also helps in planning. Planning is a process of setting goals and allocating
resources to achieve these goals. The expected financial outcome of planning is expressed in
terms of budgets. A firms can increase its profits in two ways: (i) By increasing unit sale
price/sales volume, and (ii) By reducing costs.
 Cost accounting is also useful for the purpose of control. Control comprises
managerial action to correct conditions that cause deviation between the actual and
planned performance. Comparison between the actual and budgeted cost will
highlight a poor or good performance, as well as the operations that have gone out of
control and warrant corrective action. Thus, cost accounting provides the basis for
cost/managerial control.

10. Basis Financial Accounting Cost Accounting Management Accounting
Objective Recording transactions
and determining
financial position and
profits or loss.
Ascertainment,
allocation, accumulation
and accounting for cost.
To assist the
management in decision
making and policy
formulation
Nature Concerned with
historical data
Both past and present
records
Deals with projections
for the future, hence
futuristic in nature.
Principles Following of accounting
standards is must.
Certain standards are to
be met for recording cost.
No set principles or
standards to be
followed.
Data Qualitative aspects of
business ignored.
Only quantitative data is
used.
Uses both qualitative and
quantitative information.
Reporting
frequency
Generally at the end of
financial year
As and when required by
management.
As and when required by
management.
Difference between various forms of accounting

11. Basis Financial Accounting Cost Accounting Management
Accounting
Statutory
requirement
Publication of financial
statements is mandatory
for companies.
Not mandatory Not mandatory
Subject Prime focus on whole
organization.
Focuses on individual
segments of the
organization.
Focuses on individual
segments of the
organization.
Users Both internal and external
stakeholders.
Only internal stakeholders. Only internal
stakeholders involved in
planning and control.
Verifiability vs
Relevance
Emphasis on verifiability Emphasis on product
costing and control
Emphasis on relevance
for planning and control.

12. Source: International Federation of Accountants, 1998

13. • Financial Accounting: Financial Accounting provides historical
information useful for future planning and financial forecasting
• Cost Accounting: It provides various techniques of costing which
are used in the process of planning and decision-making.
• Forecasting and budgeting: Management Accounting exercises the
tool of forecasting and budgeting in the process of planning,
controlling and decision-making
• Ta x accounting and tax planning: the analysis of implication of
tax provisions on future projects comes under management
accounting.

14. Internal Control & Audit: Management Accounting highly depends on
internal control system existing in the organization to identify the
weaker sections of the organization.
Cost Control Procedures: include inventory control, cost control,
budgetary control, variance analysis etc.
Financial Analysis and Interpretation: Various financial analysis
techniques such as Ratio Analysis, Fund Flow Analysis, Trend analysis
are used to analyze and interpret financial data.

15. • Reportingto Management: The Management Accountant is
required to submit reports to the management as per their
requirements.
• Office Services: Management Accountant is expected to maintain
and control office routines and procedures like filing, copying,
communicating, data processing etc.
• Statistical Tools: Various statistical tools like graphs, charts,
diagrams are used in the process of planning, controlling and
decision-making.

16.  Analysis and Interpretation of Financial Statements
 Planning and policy-making
 Decision-Making
 Controlling
 Coordinating
 Communicating
 Helps in evaluating the efficiency and effectiveness of
policies

17.  Financial Statement Analysis
 Fund Flow Analysis
 Cash Flow Analysis
 Budgetary Control
 Standard Costing
 Marginal Costing
 Management Reporting
 Statistical and Operations Research
techniques

18.  Planning
 Controlling
 Coordination
 Performance Evaluation
 Organizing
 Motivating
 Communicating
 Decision-making

19.  Reliance on accounting data
 Based on historical data
 Highly Expensive
 Complicated application
 Lack of objectivity

20.  Analysis and Interpretation of Financial Statements
 Planning and policy-making
 Decision-Making
 Controlling
 Coordinating
 Communicating
 Helps in evaluating the efficiency and effectiveness of
policies

21. Management Accounting - Basics
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Management
Accounting is
concerned with
accounting
information that is
useful for the
management
It emphasizes
the
preparation
of reports for
its internal
users
It is forward
looking rather
than
retrospective
Accumulated
data are
reclassified as
per the
requirements of
the management
decision making
process
In Management
Accounting System,
data support is
taken from financial
and cost accounting
Management
Accounting may
include much non
financial data
Information generated
in management
accounting process
includes
Financial Statement
Analysis
Cash Flow Analysis
Cost Information
Budgets and
Standards
Variance Analysis
Definition
Management accounting is the process of identification, measurement, accumulation, analysis, preparation,
interpretation and communication of information that assists managers in specific decision making within the
framework of fulfilling the organizational objectives.