advantages of management account,definition,functions of management account,limitations of management account,management account,meaning,nature of management account,objectives of account,scope of management account
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.
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
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
Scope of Management Account
Tools and technique of management control
Statistical and quantitative techniques
Functions of management account
Furnishing relevant and vital data
Compilation of data in suitable form
Analysis and interpretation
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.
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
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
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.
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.