2. INTRODUCTION TO ACCOUNTING
ACCOUNTING is the art of
recording classifying and
summarizing in a significant
manner and in terms of
money transactions which
are of financial character
and interpreting the results
there of.
ACCountInG Is CAllED “tHE
lAnGuAGE oF BusInEss” tHAt
serves as a means of
communication.
4. History of accounting
management
Management accounting
developed to meet
mAnAGEmEnt’s nEEDs For
information as complexity
and uncertainty increased
with geographical expansion
and product diversification
5. Peter Drucker , In “tHE EmErGInG
tHEory oF mAnuFACturInG,” mADE
the comment:
“tHE most ExCItInG AnD InnovAtIvE work
in management today is found in
accounting theory, with new concepts,
new methodology --even what might be
called new economic philosophy --
rapidly taking shape. And while there
is enormous controversy over specifics,
the linaments of the new
manufacturing accounting are
BEComInG ClEArEr EvEry DAy.”
6. MANAGEMENT ACCOUNTING
Accounting that
concentrates on reporting
to people inside the business
entity is called
“mAnAGEmEnt ACCountInG” .
provide information to
employees, managers,
owner-manager
and auditors.
Management accounting is
concerned with accounting
information which is useful
to management.
7. REQUIREMENT OF
MANAGEMENT ACCOUNTING
Business owners use Management
Accounting to track, record and report
financial information for managerial
review.
Management accounting does not
usually follow any national accounting
standards.
Business owners can design management
accounting systems according to their
company, business operations or
management and need for business
information.
8. FUNCTIONS OF MANAGEMENT
ACCOUNTING
Modification of data:-
Accounting data are not suitable for managerial
decision-making and control purposes . they may be used
for making future estimates and projections.
Management accounting modifies the available
accounting data by rearranging the same , by resorting
to a process of classification and combination.
Analysis and data interpretation:-
Accounting data is analyzed and interpreted for
effective planning and decision making . the data is
presented in a comparative form . analytical tools (trend
percentages , raTIO ANALYSIS) ARE USED AND LIKELY TRENDS
ARE PROJECTED.
ContD…….
9. FACILITATING MANAGEMENT CONTROL:-
STANDARDS OF PERFORMANCE AND MEASURE OF VARIATION ARE
THE ESSENTIAL ELEMENTS OF ANY CONTROL SYSTEM.ALL THESE ARE
MADE POSSIBLE THROUGH STANDARD COSTING AND BUDGETORY
CONTROL SYSTEMS, WHICH ARE AN INTEGRAL PART OF MANAGEMENT
ACCOUNTING.
USE OF QUALITATIVE INFORMATION:-
FINANCIAL DATA AND ITS ANALYSIS ARE NOT SUFFICIENT FOR
DECISION MAKING .MANAGEMENT NEED QUALITATATIVE
INFORMATION WHICH MAY BE OBTAINED FROM ENGINEERING
RECORDS , CASE STUDIES ETC.
SATISFYING ALL LEVEL OF MANAGEMENT:-
VARIOUS LEVELS OF MANAGEMENT NEED DIFFERENT TYPES
OF INFORMATION.FOR TOP MANAGEMENT need CONCISE
INFORMATION , MEDIUM need TECHNICAL DATA REGULARLY
AND LOWER LEVEL ARE INTERESTED IN DETAILED FIGURES
RELATING TO THE PARTICULAR SPHERE OF ACTIVITY AT SHORT
INTERVALS.
10. ADVANTAGES OF MANAGEMENT
ACCOUNTING
Reduce Expenses:
Management accounting help companies lower
their operational expenses. Business owners
often use management accounting information
to review the cost of economic resources and
other business operations. This information
allows owners to better understand how much
money it costs to run the business.
Improve Cash Flow:
Budgets is a major part of management
accounting. Business owners often use budgets
so they have a financial road map for future
business expenditures. The main purpose of
budgets is to save the company money through
careful analysis of necessary and unnecessary
cash expenditures.
11. Business Decisions:
Management accounting often improves the
business decision-making process. Rather than
making business decisions based solely on
qualitative analysis, business owners or
managers can use management accounting
information as a decision-making tool. Management
accounting usually provides a quantitative
analysis for various decision opportunities.
Increase Financial Returns:
Business owners can also use management
ACCountInG to InCrEAsE tHEIr CompAny’s FInAnCIAl
returns. Management accountants can prepare
financial forecasts relating to consumer demand,
potential sales or the effects of consumer price
changes in the economic marketplace.
12. Relationship of management accounting
with cost and financial accounting
FINANCIAL
ACCOUNTING MANAGEMENT
ACCOUNTING
DRAWS OUT
INFORMATION FROM
FINANCIAL AND COST
ACCOUNTING MODIFY
SAME FOR
COST MANEGERIAL USE.
ACCOUNTING
13. Distinctions between MANAGEMENT
ACCOUNTING and FINANCIAL ACCOUNTING
OBJECTIVE:
MANAGEMENT ACCOUNTING IS PRIMARILY AN INTERNAL
REPORTING SYSTEM AND FINANCIAL ACCOUNTING IS
EXTERNAL REPORTING SYSTEM.
SUBJECT MATTER:
MANAGEMENT ACCOUNTING PROVIDES DETAILED
ANALYTICAL DATA FOR MANAGERIAL USE. FINANCIAL
ACCOUNTING DEALS WITH THE OVERALL POSITION OR
PERFORMANCE OF THE BUSINESS.
NATURE OF DATA USED:
MANAGEMENT ACCOUNTING CONCERNED WITH THE
FUTURE INFORMATION.FINANCIAL ACCOUNTING
CONCERNED WITH MONETARY RECORDS OF PAST EVENTS.
contd…..
14. PERIODICITY OF REPORTING:
FINANCIAL STATEMENTS ARE PREPARED AT END OF
ACCOUNTING YEAR . GREATER EMPHASIS LAID IN
MANAGEMENT ACCOUNTING FOR QUICK INFORMATION AT
SHORT INTERVALS.
ELEMENTS OF COMPULSION:
FINANCIAL ACCOUNTING HAS MORE OR LESS BECOME
COMPULUSORY OR STATUTORY FOR EVERY BUSINESS. BUT
A BUSINESS IS FREE TO INSTALL OR NOT INSTALL SYSTEM
OF MANAGEMENT ACCOUNTING.
FLEXIBILITY:
ELEMENTS OF COMPULSION SHOWS THAT MANAGEMENT
ACCOUNTING IS HIGHLY FLEXIBLE OR LESS RIGID IN
APPROACH AS COMPARED TO FINANCIAL ACCOUNTING.
15. Distinctions between management
accounting and cost accounting
cost management
accounting accounting
Concerned with all such
Concerned with cost matters in a wider
control , cost perspective which help
ascertainment & tools management in policy
like budgetary control, formation , improve
standard costing etc. productivityprofitability.
Primarily deals It consider both cost
with cost data. and revenue.
16. Limitations of accounting
management
Based on Accounting Information:
Mgt Accounting is based on data of Financial and Cost Accounting.
Historical data is used to make future decisions. The correctness and
effectiveness of managerial decisions will depend upon the quality of
data on which these decisions are based. If financial data is not reliable
then Mgt Accounting will not provide correct analysis.
Lack of Knowledge:
The application of Mgt Accounting will be useful to person connected
with Decision making process as they have proper understanding of Mgt
Accounting and related subjects such as Statistics, Economics, Principles
of Mgt, Engineering etc.
Intuitive decision :
In Mgt Accounting decision making based on facts and figures, there is a
tendency to make decisions intuitively. Mgt may avoid lengthy courses of
deciding things and may take an easy course of arriving at decision, using
intuitive. This makes management accounting system a waste.
contd….
17. Limitations of accounting
management
Not an alternative to Administration:
The tools and techniques of Mgt Accounting provide only
information and not decision. Decisions and their implementations
are done, by Mgt. So it has supplementary service function and
has no final say in taking decisions and their implementations.
Top heavy structure:
Introduction of this system is costly affair and can be used by big
concerns only. Smaller concerns cant afford to use this system
because of heavy cost.
Psychological Resistance:
The Installation of Mgt Accounting involves basic changes in
organizational setup. New rule and regulations are to be framed
which affect a number of personnel and hence there is a
possibility of resistance
18. Role of management
accounting
Provide accounting information to the
management to perform its function
effectively.
Modify available relevant information for
effective planning and decision making.
Provide tools like budgetary control ,
standard costing etc. which helps
management.
Effective coordination could be achieved
through departmental budgets and reports
contd……
19. Communication
Contd… is an important role of
management which involves
transmission of data, information,
results etc. to both outsider and
insider . decision of top management to
be communicated to middle and lower
level managements and the results and
requirement should be reported to top
level management.
Results have to be reported to
shareholders, creditors , investors who
wIsH to know ABout CompAny’s FInAnCIAl
position and progress.
20. Management Accountant’s Role
as
Internal Consultant:-
Collects Prepares
and compiles standardized
information reports
Internal
Consultant
Interprets and Is Involved
Analyzes information In decision making
Management
21. Planning, Controlling &
decision making:-
Planning: Setting Control:
objectives and Implementing plans
outlining how the and using feedback to
objectives will be evaluate the
obtained. attainment of
objectives . Example:-
Example:- BUDGET Performance report
which are accounting report
provide feedback by comparing
actual results with plans
Decision making: the purposeful choice
from among a set of alternative courses
of action designed to achieve some objective.
Example:-Deciding selling price of a product
24. Major Influences on
Management Accounting
Advances in technology:
E-commerce
Enterprise resource planning (ERP)
Business process reengineering:
Just-in-time (JIT) philosophy
Lean manufacturing
Computer-integrated manufacturing
Six sigma
25. Career Opportunities in
Management Accounting
The Certified Management Accountant (CMA)
CMA must pass a four-
part examination:
1. Business Analysis
2. Management accounting
and reporting
3. Strategic Management
4. Business Applications
