UNIT 1

MANAGEMENT ACCOUNTING

PROF. V. GURUMOORTHIDEPT. OF COMMERCE

KASC.09.12.2016

ACCOUNTING

• Accounting means, the art of recording, classifying, summarizing, and interpretation the business transaction which related to money value.

BRANCH OF ACCOUNTING

FINANCIAL ACCOUNTING COST ACCOUNTING MANAGEMENT

ACCOUNTING

Ascertain profit & loss and

indicate financial position of the

business.

To know the COST of

Production/ per unit.

Helps to the manager to take

managerial decision based on Financial & Cost accounting Data.

INTRODUCTION OF MANAGEMENT ACCOUNTING

(ORIGIN)

Management accounting is Recent Origin.

The term was first used in 1950 by a term of accounts visiting USA under the auspices of Anglo-American Council on productivity.

MEANING OF MANAGEMENT ACCOUNTING

• Management accounting is the process of identification, measurement, preparation, analyze, interpretation and communication of financial information used by management to take various decisions for the enterprise.

• Management accounting provides necessary financial information to the managers and to take proper and effective decisions.

• It provides information to all stakeholders of a company.

Managerial decisions

• Make or Buy

• Dropping or Adding Product Line

• Purchase or Lease

• Selling Agents or Sales Force

• Product Mix

• Price Mix

• Promotion Mix

DEFINITION

• “ Management Accounting is concerned with accounting

information that is useful to management.”- Robert Anthony

• “ Management Accounting is concerned with supplying financial

data useful to management at all levels in managing and

administering an enterprise.”- W.B. Meferland

Nature of Management Accounting

1. Providing Financial Information

2. Cause and Effect Analysis.

3. Use of special techniques & Concepts.

4. Decision Making.5. No fixed

Conventions/Proced

ures.

6. Achievement of Objectives.

7. Improving Efficiency8. Forecasting9. Providing of

Information and not Decisions.

•Financial AccountingFinancial accounting forms the basis for analysis and interpretation for

furnishing meaningful data to the management.

•Cost AccountingCost accounting is the process and techniques of ascertaining cost.

Planning, decision making and control are the basic managerial functions.

•Budgeting And ForecastingBudgeting means expressing the plans, policies and goals of the firm for a definite period in future. Forecasting on the other hand, is a prediction of what will happen as a result of a given set of circumstances.

Scope of Management Accounting

• Inventory ControlInventory is necessary to control from the time it is acquire till its final disposal as it involves large sum. The inventory control technique will be helpful for taking managerial decisions.

• Statistical Analysis:In order to make the information more useful, statistical tools are applied. These tools include charts, graphs, diagrams, index numbers, etc…

• Analysis of Data:Financial statements are analyzed and compared with past statement or other firm’s statements.

• Internal Audit:Internal audit helps the management in fixing individual responsibility for internal control.

1. Presentation of Data2. Aid of planning and forecasting3. Help in organizing4. Decision Making5. Effective Control6. Communication of Management Policies7. Effective Control8. Incorporation of Non-Financial Information9. Coordination10.Motivating employees

Functions of Management Accounting

1. Increase in efficiency2. Effective Planning3. Performance Evaluation4. Profit Maximization5. Reliability6. Elimination of Wastages7. Effective

Communication8. Employee Morale9. Control & Co-ordination

Advantage

1. Dependence for basic Records

2. Personal Bias3. It is only a Tool4. Provides only

Data5. Need Experts6. Costly to Install

Disadvantage

FINANCIAL Accounting

COST Accounting

MANAGEMENT Accounting

Financial Accounting summarize transactions taking place during a period with the objective of preparing the financial statements.

Cost Accounting summarized data and total cost incurred during a period.

It provides financial information (analyzed) to the manager to take managerial decision based on financial & cost accounting data

DIFFERENCE BETWEENFINANCIAL & MANAGEMENT

ACCOUNTINGNature FINANCIAL

ACCOUNTINGMANAGEMENT ACCOUNTING

PURPOSE To ascertain Profit & Loss by preparing P&L A/c and reveal the financial position through Balance Sheet.

To provide information to the management for decision making on internal operations.

FOCUS It recording past transactions.(Historical Data)

It focus Management’s future plans.

ANALYZE OF DATA Financial accounting provides consolidate information of the whole enterprise.

It evaluate performance of different department, divisions and as per the requirement of management.

LEGAL REQUIREMENTS

It has become compulsory as per the statutory requirements.

It is of voluntary adoption by the management to function effectively.

NATURE FINANCIAL ACCOUNTING

MANAGEMENT ACCOUNTING

PRINCIPLES AND PROCEDURES

It based on accounting concepts and conventions.

It has no any rigid principles.

FORMAT OF STATEMENTS

It has various financial statements based on revenue, capital, personal and real accounts.

In its only income and expenses based statements.

AUDIT In financial accounting audit is compulsory by chartered accountant.

In management accounting there is no compulsory audit. May be in internal audit done by manager.

REPORTING In financial accounting reports given end of the financial year.

Produce reports frequently.

Nature COSTACCOUNTING

MANAGEMENT ACCOUNTING

PURPOSE To ascertain and control the cost of products or services.

To provide information to management for efficient decision making.

EMPHASIS It is based on both historical and present data.

It deals with future projections based on historical and present cost data.

PRINCIPELS AND PROCEDURES

Established procedures and practice are followed in cost accounting.

No such prescribed practice are followed in it.

DATA USED It uses only quantitative information.

It uses both qualitative and quantitative information.

SCOPE It is concerned mainly with cost ascertainment and control.

It has wide scope. Includes, financial accounting, cost accounting, budgeting… ect.

DIFFERENCE BETWEENCOST & MANAGEMENT ACCOUNTING

MANAGEMENT ACCOUNTANT

• Management accountant is a person who is entrusted with management accounting.

• He is also known as “Controller of accounts”.• He plays a significant role in decision making in

an organization.

RESPONSIBILITIES & DUTIES

• The installation & interpretation of all accounting records of the company.

• The preparation and interpretation of the financial statements of the

company.

• The compilation of production costs.

• The taking and costing of all physical inventories.

• Continuous audit of all accounts and records of the company wherever

located.

• The preparation and filing of tax returns.

• The maintenance of records of all contracts and leases.

FUNCTIONS OF MANAGEMENT ACCOUNTANT

• To establish, coordinate and administer an adequate plan for the control of operations.

• To compare performance with standards and to report and interpret its results to all levels of management.

• To administer tax policies and procedures.• To supervise preparation of reports to Government

agencies.• To assure protection of assets of the company through

internal control or insurance coverage.• To provide regular information and updates to the

management on various issues, so as to help the management take timely and correct decisions.

MANAGEMENT ACCOUNTING : TOOLS AND TECHNIQUES

A. TOOLS BASED ON FINANCIAL ACCOUNTING

C. TOOLS BASED ON BUDGETING AND FORECATING

B. TOOLS BASED ON COST ACCOUNTING

D. TOOLS BASED ON MATHEMATICS

MANAGEMENT ACCOUNTING:

TOOLS & TECHNIQUES

A. TOOLS BASED ON FINANCIAL ACCOUNTING

Common Size Statement

Comparative Statement

Ratio Analysis

Fund Flow Statement

Cash flow Statement

B. TOOLS BASED ON COST ACCOUNTING

Cost Volume Profit Analysis

Standard Costing

Contribution

Break-Even Point

Marginal Costing

Differential Costing

C. TOOLS BASED ON BUDGETING AND FORECASTING

Business Forecasting

BudgetingProject

Evaluation ( PERT & CPM)

PERT- PROGRAMME EVALUATION AND REVIEW TECHNIQUECPM – COST PER THOUSAND IMPRESSIONS

D. TOOLS BASED ON MATHEMATICS

Correlation Analysis

Regression Analysis

Time Series Analysis

Trend Analysis

Operations Research

Simulation Theory

SOCIAL MESSAGE

Save tree’s soul, It will save your FUTURE

family’s soul…….