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*Define Management Accounting.

*Management Accounting is helpful in *Describe the necessity of Financial


The process of preparing management decision making-discuss the statement. Statement Analysis.
reports and accounts that provide accurate Managerial accounting information provides 1. Holding Of Share: Shareholders are the
and timely financial and statistical data-driven input to these decisions, which can owners of the company. The financial
information required by managers to
improve decision making over the long term. statement analysis is important as it provides
make day to day and short time decisions
is called Management Accounting. Small business managers can leverage this meaningful information to the shareholders in
powerful tool to help make their business more taking decisions.
Unlike financial accounting, which successful by understanding how management 2. Decisions And Plans: The management of
produces annual reports mainly for accounting benefits common business decision the company is responsible for taking
external stakeholders, management contexts. decisions and formulating plans and policies
accounting generates monthly or weekly Relevant Cost Analysis for the future. They, therefore, always need to
reports for an organization's internal
Managerial accounting information is used by evaluate its performance and effectiveness of
audiences such as department managers
and the chief executive officer. These company management to determine what their action to realise the company's goal in
reports typically show the amount of should be sold and how to sell it. For example, the past. For that purpose, financial statement
available cash, sales revenue generated, a small business owner may be unsure where analysis is important to the company's
amount of orders in hand, state of he should focus his marketing efforts. management.
accounts payable and accounts receivable, Activity-based Costing Techniques 3. Extension Of Credit: The creditors are the
outstanding debts, raw material and Once the company has determined what providers of loan capital to the company.
inventory, and may also include trend
products to sell, the business needs to Therefore they may have to take decisions as
charts, variance analysis, and other
statistics. determine to whom they should sell the to whether they have to extend their loans to
products. By using activity-based costing the company and demand for higher interest
*Explain the role of Management techniques, small business management can rates. The financial statement analysis
Accounting in Planning and control in determine the activities required to produce and provides important information to them for
a bank. service a product line. their purpose.
A basic objective of managerial Make or Buy Analysis 4. Investment Decision: The prospective
accounting is to improve the effectiveness A primary use of managerial accounting investors are those who have surplus capital
of both the management planning and information is to provide information used in to invest in some profitable opportunities.
control functions. Plans should be manufacturing. By completing a make or buy Therefore, they often have to decide whether
developed on the same information base analysis, she can determine which choice is to invest their capital in the company's share.
as the mechanisms of control. Planning more profitable. The financial statement analysis is important
depends on the same reporting and control Utilizing the Data to them because they can obtain useful
mechanisms that make central oversight Managerial accounting information provides a information for their investment decision
possible and decentralized management data-driven look at how to grow a small making purpose.
feasible. Building the mechanism of business. Budgeting, financial statement
control on one data base (financial projections and balanced scorecards are just a *Describe the Limitations of Financial
accounting) and the planning process on few examples of how managerial accounting Statement Analysis.
another (program analysis) places too information is used to provide information to Although financial statement analysis is
great a burden on the management system help management guide the future of a highly useful tools, it has limitations also.
as the intermediary. Managerial company. The limitations involve the comparability of
accounting involves in the formulation of financial data between companies and the
financial estimates of future performance *Shortcomings of traditional methods of need to look beyond ratios.
(the planning and budgeting processes) credit analysis.
and, subsequently, the analysis of actual 1. Past financial performance, good or bad, is Comparison of one company with another
performance in relation to those estimates not necessarily an accurate predictor of future can provide valuable clues about the financial
(program evaluation and control). performance. health of an organization.
2. Financial statements do not tell you about
*Explain the role of Management changes in senior management. The analyst should keep in mind the lack of
Accounting in a bank. 3. Financial statements do not tell you about the comparability of the data before drawing any
OR loss of major customers. definite conclusion. Comparisons of key
*Management Accounting is beneficial 4. Financial statements do not tell you about the ratios with other companies and with industry
for banking operation - comments with competitive environment in which the company average often suggest avenues for further
the example. operates. investigation.
1. Collection, Classification, Analysis and 5. Financial statements do not disclose the
Presentation of Financial data companys future prospects, or the results of its *Describe briefly the uses of Financial
2. Systematic and reliable planning expenditures on Research and Development. Statement Analysis.
3. Ascertainment, Reduction and Control 6. The more out-of-date a customer financial Analysis of the statement of financial position
of cost 4. Product Pricing statements are, the less reliable they are as a referred to as a balance sheet analysis, reports
5. Measurement of work performance risk management tool. on a companys assets, liabilities, and
6. Preparation of statement of cost and ownership equity at a given point in time.
other necessary statement 1. A financial statement analysis provides
7. Preparation of Master Plan of information on the operation of the enterprise.
Development of Industry These include sale and the various expenses
8. Role of Financial Management in incurred during the processing state.
Industry 9. Forward looking
2. Financial statement analysis gives
10. Efficiency Analysis
information about the changes in equity
11. Helping in decision making
which helps to explain the changes of the
companys equity throughout the reporting
period.
3. Financial statement analysis provides
information about cash flows which helps to
prepare report on companys cash flow
activities, particularly it operating, investing
and financial activities.

*Compare and Contrast between


Management Accounting and
Financial Accounting.

The differences between management


accounting and financial accounting
include:
1. Management accounting provides
information to people within an
organization while financial
accounting is mainly for those outside
it, such as shareholders.
2. Financial accounting is required by
law while management accounting is
not. Specific standards and formats
may be required for statutory
accounts such as in the I.A.S
International Accounting Standard
within Europe.
3. Financial accounting covers the
entire organization while
management accounting may be
concerned with particular products or
cost centers.
Contrast
Format:
Fin. Acc: Financial accounts are
supposed to be in accordance with a
specific format by IAS so that
financial accounts of different
organizations can be easily compared.
Man. Acc: No specific format is
designed for management accounting
systems.
Planning and control:
Fin. Acc: Financial accounting helps
in making investment decision, in
credit rating.
Man. Acc: Management Accounting
helps management to record, plan and
control activities to aid decision-
making process.
Focus:
Fin. Acc: Financial accounting
focuses on history.
Man. Acc: Management accounting
focuses on future.
Users:
Fin. Acc: Financial accounting
reports are primarily used by external
users, such as shareholders, bank and
creditors.
Man. Acc: Management accounting
reports are exclusively used by
internal users viz. managers and
employees.
External Vs. Internal:
Fin. Acc: A financial accounting
system produces information that is
used by parties external to the
organization, such as shareholders,
bank and creditors.
Man. Acc: A management accounting
system produces information that is
used within an organization, by
managers and employees.