Introduction to Management Accounting MODULE - 1   Chapter – I Introduction to Management Accounting Dr. Manoj Shah, Principal Investigator, NMEICT

Topics to be enlightened… Introduction and Meaning of Management Accounting Definition Relation of Management Accounting with Cost Accounting and Financial Accounting Role of Management Accounting Nature of Management Accounting Scope of Management Accounting Tools and Techniques Difference between Management Accounting and Cost Accounting Difference between Management Accounting and Financial Accounting Functions of Management Accounting Concepts of Management Accounting Limitations of Management Accounting Dr. Manoj Shah, Principal Investigator, NMEICT

Introduction & Meaning Management Accounting is the base in accounting for managers with which managers get necessary information on executing their functions. Decision making in any business enterprise is a primary function of the management. Financial Accounting leads to the formation of the Management Accounting in that it provides various sets of accounts and statements which, though not enough for decision making, provide raw data to the managers for Management Accounting. Management Accounting is an accounting system designed to provide adequate and appropriate information to the management in order to carry out its functions. It is also known as “Management Oriented Accounting” or “Accounting for Management”. Dr. Manoj Shah, Principal Investigator, NMEICT

Dr. Manoj Shah, Principal Investigator, NMEICT Definitions Management Accounting is accounting for effective management. —Bose Such of its techniques and procedures by which accounting mainly seeks to aid the management collectively have come to be known as management accounting. —The Institute of Chartered Accountants of India Management Accounting is an integral part of management concerned with identifying, presenting and interpreting information used for formulating strategy, planning and controlling activities, decision making, optimizing the use of resources, disclosure to shareholders and other external to the entity, disclosure to employees, safeguarding assets. —The CIMA Dr. Manoj Shah, Principal Investigator, NMEICT

Dr. Manoj Shah, Principal Investigator, NMEICT Relation of Management Accounting with Cost Accounting and Financial Accounting: Preparing Revenue statement and Position Statement FINANCIAL ACCOUNTING Evaluating Cost for Control and optimum competence COST ACCOUNTING Help Management for Planning, Control and Decision Making MANAGEMENT ACCOUNTING Dr. Manoj Shah, Principal Investigator, NMEICT

Role of Management Accounting Planning Organizing Coordinating Controlling Motivating Communicating Dr. Manoj Shah, Principal Investigator, NMEICT

Dr. Manoj Shah, Principal Investigator, NMEICT Tools & Techniques Financial planning Analysis of financial statements Historical cost accounting Standard costing Budgetary control Marginal costing Decision accounting Revaluation accounting Ratio accounting Internal auditing Management information system Statistical techniques Dr. Manoj Shah, Principal Investigator, NMEICT

Nature of Management Accounting Forecasting Mangers takes decisions for the future course of action and not for the past Disseminate information It only supplies information to the necessary department for decision Increase in efficiency It helps the management to make effective decision and increase efficiency Usage of techniques and concepts Management accounting through various techniques and concepts makes data more useful No fixed model There is no uniformity for data analyses from organisation to organisation Aids management It provides accurate information to make right decision Cause and effect analysis It portrays the relation of cause and effect between the variables Helps in achieving objectives Management accounting directly or indirectly helps in achieving objectives Dr. Manoj Shah, Principal Investigator, NMEICT

Scope of Management Accounting Financial Accounting Cost Accounting Budgeting and forecasting Statistics Inventory control Analysis and interpretation of data Reporting Methods and procedures Dr. Manoj Shah, Principal Investigator, NMEICT

Dr. Manoj Shah, Principal Investigator, NMEICT Difference Basis Management Accounting Financial Accounting Objective Provide information to management Main aim is to supply data or information Performance It provides the data of all departments and their function performed It measures an overall performance of the business Data usage Quantitative and qualitative information used It uses historical in nature uses past data Monetary management In this case even non-monetary events also enter into the books Only monetary transactions are taken into consideration Reporting it needs continuous availability of the data and report It is longer than management accounting Nature This is subjective in nature and highly based on judgement It has been more objective than management accounting Legality It is voluntary practice as per organizations requirement It is more or less a mandatory practice for every business Coverage It is limited in this case focusing on the needs of the management It covers all the aspects of the concern nature Publication and audit In case of management accounting no such provisions are made It is published and audited for the use of general public and stakeholders Methodology It ‘s revealed in various statements and reported to different centres It is prepared in various prescribed formats Dr. Manoj Shah, Principal Investigator, NMEICT

Management Accounting Dr. Manoj Shah, Principal Investigator, NMEICT Difference Basis Management Accounting Cost Accounting Objective Provide information to management To record the cost of producing a product or service Scope It is very wide It deals with cost ascertainment Nature it’s main concerned is projection of figures for future Its uses both past and present figures Data used Quantitative and qualitative information used Quantitative aspects are used Development This has been developed in last 3 decades It has developed during industrial revolution Principle followed No specific rules and procedures are followed Certain principles and procedures are followed for recording costs Dr. Manoj Shah, Principal Investigator, NMEICT

Functions of Management Accounting Provides data Modifies data Analyses and interprets data Serves as a means for communicating Facilitates control Use of qualitative information Dr. Manoj Shah, Principal Investigator, NMEICT

Limitations of Management Accounting Based Solely on Accounting Records Constant Efforts Required Widespread Knowledge Expensive System Resistance to Systemic Changes Incommensurability between Progressive Phase and Static Techniques Dr. Manoj Shah, Principal Investigator, NMEICT