School of Commerce and Managment Studies

 
Topic : definition , objective, scope ,function,
Need , importance of management accounting
Class : B.B.A. (SY)
Subject:management accounting
Semester : 4th
Written By : Vighnesh Sohani
PRN/ Roll No. : 180102011006
Guided By : Prof. vinod pathade
Management accounting

■ Definition: Management accounting, also called

managerial accounting or cost accounting, is the
process of analyzing business costs and operations
to prepare internal financial report, records, and
account to aid managers’ decision making process in
achieving business goals. In other words, it is the act
of making sense of financial and costing data and
translating that data into useful information for
management and officers within an organization.
Objectives of Management Accounting:
Assistance in Planning and Formulation of Future Policies
Helps in the Interpretation of Financial Information
Helps in Controlling Performance 4. Helps in Organizing
Helps in the Solution of Strategic Business Problems
Helps in Coordinating Operations
Helps in Motivating Employees
Communicating Up-to-date Information
Helps in Evaluating the Efficiency and Effectiveness of
Policies
Assistance in Planning and Formulation of
Future Policies:
Management accounting assists management in
planning the activities of the business. Planning is
deciding in advance what is to be done, when it is to
be done, how it is to be done and by whom it is to
be done. It involves forecasting on the basis of
available information, setting goals, framing
policies, determining the alternative courses of
actions and deciding on the programme of activities
to be undertaken.
Helps in the Interpretation of Financial
Information:
Accounting is a technical subject and may not be easily
understandable by everyone till the user has a good
knowledge of the subject. Management may not be able
to use the accounting information in its raw form due to
lack of knowledge of accounting techniques.
Management accountant presents the information in an
intelligible and non-technical manner. This will help the
management in interpreting the financial data,
evaluating alternative courses of action available and
guiding the management in taking decisions and having
the most desired financial results.
Helps in Controlling Performance:
Management accounting is a useful device of managerial
control. The whole organisation is divided into
responsibility centres and each centre is put under the
charge of one responsible person. He will be associated
with the planning and framing of the budgets and be
required to execute the plans and standards and
deviations are analysed in order to pinpoint the
responsibility.
Thus, management accountant helps in controlling the
performance of the different responsibility centres and take
suitable actions in order to correct the adverse deviations
by revising the budgets if need be.
Management accounting assists management in location of
weak spots and in taking corrective actions against such
spots which are not in conformity with the budgeted
performance. Thus, management accounting helps
management in discharging its control function successfully
through budgetary control and standard costing.
Helps in Organizing:
Thus management accountant recommends the use of
budgeting, responsibility accounting, cost control
techniques and internal financial control. This all needs
the intensive study of the organisation structure. In turn,
it helps to rationalise the organisation structure.
Objective # 5. Helps in the Solution of Strategic Business
Problems:
Whenever there is a question of starting a new business,
expanding or diversifying the existing business, strategic
business problem has to be faced and solved.
Helps in Coordinating Operations:
Management accounting helps the management in co-
coordinating the activities of the concern by getting
prepared functional budgets in the first instance and then
co-coordinating the whole activities of the concern by
integrating all functional budgets into one known as
master budget. Thus, management accounting is a useful
tool in co­ordinating the various operations of the
business.
Helps in Motivating Employees:
The management accountant by setting goals, planning
the best and economical course of action and then
measuring the performance tries his best to increase the
Communicating Up-to-date Information:
Management accounting assists management in
communicating the financial facts about the enterprise to
the persons who are interested in these facts so that they
may be guided to a line of action to be pursued.
Management needs information for taking decisions and
for evaluating performance of the business.
Helps in Evaluating the Efficiency and
Effectiveness of Policies:
Management accounting also lays emphasis on
management audit which means evaluating the
efficiency and effectiveness o£ management policies.
Management policies are reviewed from time to time to
make an improvement in them so that maximum
Scope of Management Accounting
The main purpose of management accounting is to utilize
the accounting information in solving the business
problems and taking scientific decisions. Moreover, the
scope of management accounting is very wide.
Therefore, it is very difficult of pinpoint the exact scope of
management accounting. However, the scope of
management accounting are listed below.
1. Financial Accounting
Financial accounting is relating to the recording of
business transactions immediately soon after the
transaction taken place or afterwards incurring the
expenses. The business transaction may be relating to
income, expenses, inventory movement, assets,
liabilities, cash receipts and payments and so on.
The process of financial accounting includes the
preparation of financial statements regularly at the end
of each accounting year for knowing operating results for
a definite period. The term financial statements includes
profit and loss account and balance sheet.
2. Cost Accounting
Cost accounting is concerned with the ascertainment of
various elements of costs for different business operation
and activities. These cost data are used in the
management accounting system for further analysis so
as to solve business problems and take quality decision.
3. Budgeting and Forecasting
Management accounting includes budgetary control and
forecasting techniques also. Under budgetary control
system, the budgets are prepared on functional basis and
measure the actual performance, find the difference
between the actual and standard for taking corrective
actions In this way, budgeting assists the management
for identifying responsibility and ensuring coordination.
4. Revaluation Accounting
This type of accounting system is ensuring that the capital is
maintained intact in real terms. By keeping this fact in mind,
correct amount of profit is calculated and used for
managerial decision making.
5. Cost Control Procedures
Cost control procedures are an integral part of management
accounting process. In includes inventory control, cost
control, time control, budgetary control, standard costing
etc.
6. Statistical Methods
In order to analyze the financial accounting data, tables,
diagrams and graphs are used in the management
accounting system. These are nothing but statistical
methods.
7. Inventory Control
Inventory control refers to exercising control over the
utilization of raw materials, processing of work in progress
and disposal of finished goods for a specific period.
8. Reporting
Reporting is divided into two types. They are interim
reporting and external reporting. Interim reporting is
supplying information to the top management. External
reporting is supplying information to outsiders i.e.
shareholders, banks and financial institutions.
Interim reporting deals with the submission of financial
results by means of weekly, fortnightly, monthly, quarterly
or half yearly accounts or statements to the top
management.
9. Taxation
It includes the computation of corporate income tax in
accordance with the tax laws, filing of returns and
making tax payments.
10. Methods and Procedures Design and
Installation
Management accounting is relating to the most efficient
and economic system of accounting suitable to any size
and type of undertaking. Moreover, it employ best use of
mechanical and electronic devices.
11. Internal Audit
Internal audit is conducted by the business organization
with the help of paid employee who has thorough
accounting knowledge. All the relevant records are
12. Office Services
It includes maintenance of proper data processing and
other office management services.
13. Financial Management
Every owner of the business concern expects fair rate of
return on investments. It is possible through the effective
utilization of the finance. Hence, it is termed as financial
management and considered as separate discipline. The
tools in financial management are developed through
management accounting system.
14. Interpretation
Management accounting is relating to the interpretation
of financial data to management and advising them on
Functions and Objects of Management Accounting:
The primary object of Management Accounting is to
present the accounting information to the management.
The objects are:
1. To Assist in Planning: Management Accounting
assists the management in planning as well as to
formulate policies by making forecasts about the
production, the selling, the inflow and outflow of cash
etc., i.e., in planning a very wide range of activities of the
business.
2. To Assist in Organising:
By preparing budgets and ascertaining specific cost
centre, it delivers the resources to each centre and
delegates the respective responsibilities to ensure their
3. To Assist in Motivating:
By setting goals, planning the best and economical
courses of action and also by measuring the
performances of the employees, it tries to increase their
efficiency and, ultimately, motivate the organisation as a
whole.
4. To Coordinate:
It helps the management in coordinating the activities of
the enterprise, firstly, by preparing the functional
budgets, then coordinating the whole activity by
integrating all functional budgets into one which goes by
the name of ‘Master Budget’. In this way it helps the
management by coordinating the different parts of the
enterprise. Besides, overall coordination is not at all
5. To Control:
The actual work done can be compared with ‘Standards’
to enable the management to control the performances
effectively.
6. To Communicate:
It helps the management in communicating the financial
information about the enterprise. For taking decisions as
well as for evaluating business performances,
management needs information. Now, this information is
available with the help of reports and statements which
form an integral part of Management Accounting.
7. To Interpret Financial Information:
It is not possible for all concerned to understand clearly
the different treatments of accounting until and unless
Importance of Management Accounting
In complex business, it is imperative to perform
systematic management planning. Delegation of
authority and decentralization of decision-making
process has become important to conduct business. The
functions of management are no longer private. A system
of information is required to assist the management to
investigate, evaluate and verify the functioning of each
division or unit for decision-making to accomplish the
goals of the business. Management Accounting has great
importance to fulfil the needs of the management.
Management Accounting measures and reports
appropriate information to the management and
facilitates in accomplishing corporate objectives. It is
significant that the information given to the management
should be pertinent and issue based to facilitate the
■ Need of management accounting:
Management accounting is required to recognize
the financial situation of the business, it reports to
those inside the organisation for planning,
directing, motivating, and controlling and
performance evaluation. It gives special emphasis
on decision affecting the future. It is needed to
prepare plan.
Thank you
- vighnesh sohoni