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Management Accounting

  1. Management Accounting
  2. Introduction
  3. Meaning Accounting as an information system is the process of identifying, measuring and communicating the economic information of an organization to its users who need the information for decision making. It identifies transactions and events of a specific entity.
  4. Definition  A/c is “the art of recording, 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 result thereof.”  Management a/c “is a term used to describe the accounting methods, systems and techniques which coupled with special knowledge and ability assist management in its task of maximizing profits and minimizing losses.” • --------- J. Batty
  5. Objectives of Account:-  To keep systematic record  To ascertain the financial position of the business  To portray the liquidity position  To protect business properties  To facilitate rational decision making  To satisfy the requirements of law
  6. Scope of Management Account  Cost Accounting  Tools and technique of management control  Statistical and quantitative techniques  Tax accounting
  7. Functions of management account  Furnishing relevant and vital data  Compilation of data in suitable form  Analysis and interpretation  Planning  Decision making
  8. Nature 1. No Fixed Norms Followed In financial accounting, we follow different norms and rules for creating ledgers and other account books. But there is no need to follow fixed norms in management accounting. Management accounting tool may be different from one organization to other organization. Using of different tools of management accounting is fully dependent on the persons who are using it. So, business policy of each organization affects rules and regulation of applying management accounting. 2. Increase in Efficiency It is the nature of management accounting that it is used for increasing in the efficiency of organization. It scans the points of inefficiency through analysis of accounting information. By taking action for improving, organization can increase the efficiency.
  9. 3. Supplies Information not Decisions Management accountant supplies accounting facts and information and also provides interpretation, but decision making is fully dependent on higher authorities. 4. Concerned with Forecasting It is the temperament of management accounting that it is fully concerned with forecasting. In management accounting, historical accounting information is analyzed through common size financial statement, ratio analysis, fund flow analysis and accounting data tendency for knowing the probability of next fact. So, all these things are especially useful for forecasting. These forecasting may be related with following things a) sales forecasting b) production forecasting c) earning forecasting d) cost forecasting
  10. Advantages i) It helps in having complete record of business transactions. ii) It gives information about the profit or loss made by the business at the close of a year and its financial conditions. The basic function of accounting is to supply meaningful information about the financial activities of the business to the owners and the managers. iii) It provides useful information form making economic decisions, iv) It facilitates comparative study of current year’s profit, sales, expenses etc., with those of the previous years. v) It supplies information useful in judging the management’s ability to utilise enterprise resources effectively in achieving primary enterprise goals. vi) It provides users with factual and interpretive information about transactions and other events which are useful for predicting, comparing and evaluation the enterprise’s earning power.
  11. Limitationsi) Accounting is historical in nature: It does not reflect the current financial position or worth of a business. Ii ) Facts recorded in financial statements are greatly influenced by accounting conventions and personal judgements of the Accountant or Management. Valuation of inventory, provision for doubtful debts and assumption about useful life of an asset may, therefore, differ from one business house to another. iii) Accounting principles are not static or unchanging-alternative accounting procedures are often equally acceptable. Therefore, accounting statements do not always present comparable data iv) Cost concept is found in accounting. Price changes are not considered. Money value is bound to change often from time to time. This is a strong limitation of accounting. v) Accounting statements do not show the impact of inflation. vi) The accounting statements do not reflect those increase in net asset values that are not considered realized.