Management Accounting- Nature And Scope

Financial Accounting – Fin Financial Accounting – Fin. Acc is concerned with recording, classifying and summarising the business transaction so that at the end of the year profit or loss can be calculated and its effect on owned capital, assets and liabilities can be ascertained. Principles of Financial Accounting – A. Accounting Concepts Business Entity Concept Going Concern Concept Money Measurement Concept Cost Concept Dual Aspect Concept Realisation Concept Accounting Period Concept Matching Concept

B. Accounting Conventions :- Convention of Consistency Convention of Materiality and Disclosure Convention of Conservatism Limitations of Financial Accounting Change in Nature of Business Shift in Emphasis Provision of Historical Information Fails to meet the information needs of Different levels of Management Consideration of only Monetary information Less Importance of Budgeting and Planning

Cost Accounting Cost Accounting is the next stage in the development of accounting. Under cost accounting total cost of goods and the elements of total cost are studied. Definition :- ICWA London :- “Cost Accounting is the technique and process of ascertainment of costs.” Objectives of Cost Accounting Cost Determination To help Management in Cost Control To determine Selling Price To facilitate Management Decision Making

Management Accounting Management needs detailed information on different aspects to arrive at meaningful decisions. Financial accounting provides some informations but these are not adequate. Management accounting removes these limitations of financial accounting. Thus, management accounting means- “Accounting for Management to discharge its functions including organising, planning, directing and controlling. Definition :- According to American Accountng Association, “Management accounting includes the methods and concepts necessary for effective planning, for choosing among alternative business actions and for control through the evaluation and interpretation of performance.” R.N. Anthony :- “Management accounting is concerned with accounting information that is useful to management

Functions of Management Accounting Provides data Modifies Data Analysis and interpretation of data Use of Qualitative Information also To help in Planning To help in Organising To help in Motivation To help in Co-ordination Communication To help in Control To help in Decision Making

Scope of Management Accounting

Distinction Between Management Accounting and Financial Accounting Mgt Accounting Objectives :- To help mgt in planning & decision-making. It is an Internal reporting system. 2. Subject Matter :- It reveals the profitability or performance or different departments products etc in detail. 3. Nature of Data used :- Mgt Acc uses detailed, statistical, relative, past and future data and information. Periodicity :- Small intervals and quick information. Accuracy :- Need not to be completely accurate. Fin. Accounting Provides information to creditors, shareholders, banks, investors, govt. It is an external reporting system. Fin acc deals with the overall position of business because fin. Statements explain the position the position of business in totality. Fin acc presents monetary information of historic events and transactions. Long time period. Completely accurate.

Fin. Accounting 6. Fin. Acc is necessary for every business due to legal provisions. 7. Fin. Accounts are prepared under the provisions of Company act, 1956. 8. Fin. Acc records only those transactions which can e expressed in money form Mgt. Accounting 6. Compulsion : Mgt Accounting is voluntary and has no legal compulsion. 7. Legal Formalities :- There is no legal form or rules for the statements or reports under mgt accounting. 8. Monetary Transactions :- Mgt acc. Records financial and non-financial information.

Distinction between Cost Accounting and Management Accounting Objective : to determine the cost and control it. 2. Subject Matter :- Cost accounting deals mainly with cost data 3. Scope :- Cost accounting provides information relating to cost of products only , so its scope is narrow. Mgt Accounting Mgt Acc helps the management in decision making through cost and financial information. Mgt acc considers both cost and income aspects. 3. Mgt acc has a wide scope as it collects information from fin. Acc, cost acc and busine4ss finance.

Utility of Management Accounting It helps the mgt in effective planning and decision-making. Mgt accounting helps the mgt in control through budgetary control, standard costing, marginal costing. Reporting system of management accounting helps in establishing co-ordination. Management accounting helps in creating cost centre and profit centres and establishing internal audit and internal control systems for these centres. Communication plays most important role in decision making and management accounting helps in this regard through its reporting system.

Limitations of Management Accounting Limitations of Cost and Financial Accounting System Persistence of Intuitive Decision Wider Scope Costly System Psychological Resistance Evolutionary It is not Alternative to Management

Techniques of Management Accounting Analysis of Financial Statements Ratio Analysis Fund Flow Statement Cash Flow Statement Marginal Costing and Cost-volume Profit Analysis Budgetary Control and standard costing Management Reporting Statistical Techniques Value Added Statement Accounting Price Level Changes Human Resource Accounting