Академический Документы
Профессиональный Документы
Культура Документы
Unit 1
Unit 1
Structure:
1.1 Introduction
Objectives
1.2 Meaning and Definition of Management Accounting
1.3 Features and Objectives of Management Accounting
Features
Objectives of management accounting
1.4 Nature and Scope of Management Accounting
1.5 Importance and Need for Management Accounting
Importance
Need for management accounting
1.6 Functions of Management Accounting
1.7 Differences between Financial Accounting, Cost Accounting and
Management Accounting and Similarities
1.8 Summary
1.9 Glossary
1.10 Terminal Questions
1.11 Answers
1.1 Introduction
The inadequacies or limitations of financial accounting and cost accounting
have paved the way for the evolution of management accounting.
Management accounting is the presentation of data needed by the
management, at the required time, in the most suitable format.
In this unit, you will be introduced to management accounting, which can be
defined as the art or technique of analysis, interpretation and presentation of
facts, results and information revealed by financial accounting, cost
accounting and other books and records maintained by the business for the
benefit of people who are in charge of managing the business efficiently.
Let us first understand management accounting by explaining the features
and scope or various areas covered. You will also learn why it is important
for an organisation to have a clear focus on its various uses.
Page No.: 1
Management Accounting
Unit 1
and
Page No.: 2
Management Accounting
Unit 1
Page No.: 3
Management Accounting
Unit 1
Page No.: 4
Management Accounting
Unit 1
No fixed norms i.e. flexibility It has no set of rules and formats like
double-entry system of book-keeping. The analysis of data depends on
the person using it.
Page No.: 5
Management Accounting
Unit 1
Tools techniques Various tools and techniques are used to make the
accounting information suitable for managerial needs. The tools and
techniques are budgetary control, standard costing, ratio analysis, cash
flow statement and comparative analysis, etc.
Page No.: 6
Management Accounting
Unit 1
Page No.: 7
Management Accounting
Unit 1
Page No.: 8
Management Accounting
Unit 1
financial matters would not always help us arrive at the solution; therefore, it
is considered to be an inexact science that uses other conventions rather
than standardised principles. The facts to be studied could be interpreted in
many ways and the inferences are based on the ability, judgement and
common sense of management accountants. Hence, the subject is neither
fully matured nor is an infant.
As management accounting relates more to managerial matters, its data is
selective in nature and focuses on potential rather than on lost opportunities.
The data is operative in nature and caters to a firms operational needs such
as events, monetary and non-monetary details. The characteristic of data,
mode of presentation and duration are ascertained by managerial needs.
Reports are generated frequently and are used for managerial control and
internal uses. A management accountant must always look at his
organisation from the management point of view.
Management accounting is sensitive to management needs; however, it
assists the management and does not replace it. It acts as a service phase
to the management that provides highly personalised services instead of
acting as a service to management from the management accountant. In
other words, management accounting serves as a management information
system, thereby helping the management to better manage its business.
The main concern of management accounting is to provide the necessary
information to the management for the efficient discharge of various
managerial functions. The scope of management accounting covers the
following:
Page No.: 9
Management Accounting
Unit 1
Page No.: 10
Management Accounting
Unit 1
In the next section, we will study the importance and need for management
accounting.
Self Assessment Questions
7. Financial management is primarily concerned with the procurement of
the fund and their efficient and effective utilisation. (True/False)
8. _________ is a prediction of what will happen under the given set of
circumstances.
9. _________ includes computation of income tax payable by the
business in accordance with the tax regulations, filing of returns and
payment of taxes.
Page No.: 11
Management Accounting
Unit 1
performance will be good if the actual cost does not exceed the standard
cost.
Page No.: 12
Management Accounting
Unit 1
Page No.: 13
Management Accounting
Unit 1
Activity 2:
What is return on capital? Compute the return on capital of your friends
organisation.
Page No.: 14
Management Accounting
Unit 1
Page No.: 15
Management Accounting
Unit 1
In the next section, we will study about the differences between financial
accounting, cost accounting and management accounting.
Self Assessment Questions
12. _________ is the information which is not computable or measurable in
monetary terms.
13. A management accountant should assure fiscal protection for the
assets of the business through adequate internal control and proper
insurance coverage. (True/False)
Activity 3:
Assume you are the management accountant of one of the public limited
companies of your city. You are advised to get practical knowledge by
making comparative study and analysis of balance sheets of three years.
Page No.: 16
Management Accounting
Unit 1
Page No.: 17
Management Accounting
Unit 1
1.8 Summary
Let us recapitulate the important concepts discussed in this unit:
Management accounting is the art or technique of analysis and
interpretation and presentation of facts, results and information revealed
by financial accounting, cost accounting and other books and records
Page No.: 18
Management Accounting
Unit 1
kept by the business for the benefit of people who are in charge of
managing the business more efficiently.
The features of management accounting are function of forecasting,
cause and effect analysis, flexibility, provision of quantitative and
qualitative information, application of tools and techniques, responsibility
accounting and so on.
The aspects or areas covered under the scope of management
accounting are financial accounting, cost accounting, financial
management, budgeting and forecasting, inventory or material control,
statistical tools and so on.
Management accounting is very important or helpful to management in
every field of activity. It assists the management in the performance of
the various managerial functions of planning, controlling, cocoordinating, organising, motivating and communicating.
Despite the close relationship between financial accounting, cost
accounting and management accounting, there are certain differences.
The main differences between financial accounting, cost accounting and
management accounting are related to subject matter, events
considered, coverage, users of data, figures taken into account, legal
compulsion and so on.
1.9 Glossary
Budgetary control A budgetary control system is a method of monitoring
and controlling income and expenditure, and for managing the demands for
cash and minimising borrowings.
Cash flow statement Financial statements reflect the inflow of revenue
vs. the outflow of expenses resulting from operating, investing and financing
activities during a specific time period.
Double-entry system Double-entry book keeping system is the dual
aspect of entering the transactions on both the sides i.e. on the debit and
credit side of an account.
Internal audit Internal auditing is an independent, objective assurance
and consulting activity designed to add value and improve an organisation's
operations.
Sikkim Manipal University
Page No.: 19
Management Accounting
Unit 1
and
1.11 Answers
Self
1.
2.
3.
4.
5.
Assessment Questions
Management accounting
Forecasts
True
Management accounting
Financial
Page No.: 20
Management Accounting
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
Unit 1
False
True
Forecasting
Taxation
Standard costing
Co-ordinating
Qualitative information
True
d) Reporting to management
False
Terminal Questions
1. Management accounting is the accounting that provides necessary
information to the management for discharging functions such as
planning, organising, directing and controlling in an efficient manner.
The features of management accounting are function of forecasting,
cause and effect analysis, flexibility, provision of quantitative and
qualitative information, application of tools and techniques, responsibility
accounting and so on. For more details, refer sections 1.2 and 1.3.
2. Management accounting in its scope includes financial accounting, cost
accounting, financial management, budgeting and forecasting, inventory
or material control, statistical tools and so on. For more details, refer
section 1.4.
3. Management accounting is important due to its contribution for
increasing efficiency, bringing effective management control, maximising
profitability and return on capital employed, bringing coordination and so
on. For more details, refer section 1.5.
4. Management accounting performs the functions of provision of data,
modification of data, analysis and interpretation of data and so on. It
assists the management in the performance of the various managerial
functions of planning, controlling, co-coordinating, organising, motivating
and communicating. For more details, refer section 1.6.
5. The main differences between financial accounting, cost accounting and
management accounting are related to subject matter, events
considered, coverage, users of data, figures taken into account, legal
compulsion and so on. For more details, refer section 1.7.
Sikkim Manipal University
Page No.: 21
Management Accounting
Unit 1
References:
Page No.: 22