Management accounting Meaning: Management accounting is the accounting which provides necessary information to the management for discharging

functions such as planning, organizing, directing and controlling more efficiently. It is concerned with the interpretation of accounting information to guide the management for future planning, decision making, control etc. It is primarily concerned with providing information and reports relating to the conduct of the various aspects of a business. Management accounting is not just concerned with the post mortem analysis of the historical or past results. It is mainly concerned with the forecasts or estimates of the future. It helps the management in planning for the future in the light of past experience. The Management accounting is the art or technique of analysis and interpretation and presentation of facts, results and information revealed by financial accounting, cost accounting and other books and records kept by the business for the benefit of the large body of persons who are in charge of managing the business more efficiently. Nature or Characteristics of Management Accounting: 1.Forecasting: It is concerned with future. It is not confined only to the collection of historical data or facts but also helps in planning for the future because decisions are always taken for future course of action. 2. Supply information: It provides information to the management and not decisions. It can inform but it cannot prescribe. The way in which the data is used depends upon the efficiency of the management. 3. Cause and Effect Analysis: It attempts to examine the cause and effect of different variables. For instance, if there is a loss, the reasons for the loss are probed. Similarly, if there is a profit, the factors directly influencing the profitability are also studied. This may be the reason that management accounting is called as science.
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4. No fixed norms i.e Flexibility: It has no set of rules and formats like double entry system of book keeping. The analysis of data depends upon the person using it. 5. Achieving of objectives: The principle objective of management accounting is to enable manager to manage better. To take more intelligent decision, management accounting provides necessary information to the management. 6. Increase in efficiency: The main objective of management accounting is to increase the efficiency of the organization by constant performance appraisal. The performance appraisal will enable the management to pin-point efficient and inefficient spots. Corrective measures taken by the management will improve the efficiency of the concern. 7. Quantitative and qualitative information: Decision making cannot restrict itself to monetary and financial considerations. As such management accounting takes in to account the non-monetary variables also. 8. Accounting information: The basis of management accounting is financial and cost accounting information. It makes use of such information in the manner it suits the managerial needs of planning, control and decision making. 9. Tools techniques: Various tools and techniques are used to make the accounting information suitable for managerial needs. The tools and techniques are budgetary control, standard costing, ratio analysis, cash flow statement and comparative analysis etc. 10. Responsibility Accounting: It is an important managerial tool to control the human performance. It sets the targets for each individual, review their working and point out the effectiveness and inefficiencies. Scope of management accounting: The main concern of management accounting is to provide the necessary information to the management for the efficient discharge of various managerial functions. The scope of management accounting covers the following: 1.Financial accounting:
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Management accounting is mainly concerned with the modification or rearrangement of the information provided by financial accounting 2. Cost accounting: Planning, decision making controls are the basic managerial functions. In the discharge of these managerial functions cost accounting techniques or tools such as standard costing, Budgetary control plays a valuable role. 3. Financial statement analysis: Management accounting provides various techniques for financial analysis and interpretation like Ratio analysis, comparative financial statement etc. 4. Financial management: It is primarily concerned with the procurement of the fund and their efficient and effective utilization. Although financial management has emerged as a separate subject itself, but management accounting includes financial management also. 5.Budgeting and Forecasting: Budgeting means preparing budgets/setting targets for definite future period. Forecasting is a prediction of what will happen under the given set of circumstances. The comparison of actual performance with the budgeted figures will give an idea about the performance of the departments. 6.Inventory or material control: Inventory control includes control over inventory or material from the time it is acquired till its final disposal. One of the tasks of management accounting is inventory control. Inventory control includes control over stock of raw materials, work in process and stock of finished goods by determining different levels of stock minimum stock level, maximum stock level and reordering stock level. 7.Statistical methods: Management accounting provides data to the management in the form of reports. For that statistical methods or tools such as graphs, diagrams etc are used. For instance, Comparative sales statement for the number of years are made for knowing the difference in sales.
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8.Taxation: Taxation includes computation of income tax payable by the business in accordance with the tax regulations, filing of returns and payment of taxes. The management accountant has to plan taxes to minimize the tax liabilities of the firm. 9. Interpretation of data: Analysis and interpretation of financial statements are important parts of management accounting. Financial statements may be studied in comparison to statements of earlier periods or in comparison with the statements of similar other firms. After analyzing, the interpretation is made and the reports drawn from these analyses are presented to the management in a simple language. 10. Methods and procedures: This includes maintenance of proper data processing and office management services, reporting on best use of mechanical and electronic devices. It undertakes special cost studies and estimations, reports on the same to the management. 11. Reporting: The interpreted information must be communicated to the management within reasonable tine in the form of statement or reports such as comparative financial statement, cash flow statement etc. Differences between Financial Accounting, Cost accounting and Management Accounting 1. Age: Financial accounting is several centuries old (4th century). The Development of cost accounting dates back to industrial revolution (18501900). But management accounting has developed only in the last sixty years (1950). 2. Subject matter: Financial accounting is concerned with the recording, classifying and summarizing of the business transactions with a view to determine the profit or loss of the business for a period and to ascertain the assets and liabilities of the business at the end of the particular period. On the other hand management accounting is concerned with the presentation of information to the management for the efficient discharge of managerial functions. Cost accounting is primarily concerned with the ascertainment of cost and profitability and control of cost.
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3. Events considered: Financial accounting considers only the monetary events (i.e., only those events which can be expressed in terms of money). But management accounting is interested in monetary events and also in nonmonetary events like performance of employees, quality of products etc. In cost accounting, mostly monetary events are considered. 4. Coverage: Financial accounting deals with overall performance of the business a whole. On the other hand cost and management accounting deals with the details of the various divisions, departments, products or other subdivisions of the enterprise. 5. Users of data: Financial accounting is designed to provide information through the profit and loss account and the balance sheet, to outsiders, such as the shareholders, debenture holders, bankers, creditors, investors, and the government. But management accounting is designed principally to provide information to the management. Cost accounting provides information to both the external parties and the internal parties. 6. Figures taken into account: Financial accounting is concerned only with historical or past data. It confines itself with the analysis of what has happened in the past. But management accounting is concerned with the past data as well as the estimates for the future i.e., future plans. Though cost accounting takes into account estimates for the future, it mostly uses past data. 7. Periodicity of reporting: The period of reporting is much longer in financial accounting as compared to cost and management accounting. Generally financial statements (i.e.., the profit and loss account and the balance sheet) are prepared at the end of every accounting year. But cost and management accounting furnishes information quickly and at short intervals per the requirements of the management. 8. Accounting principles: Generally financial accounting is governed by certain accepted principles whereas cost and management accounting is not governed by any accepted accounting principles. It is generally molded according to the needs of the particular organization. 9. Legal compulsion: Financial accounting has more or less become compulsory for all forms of business organizations. It is compulsory for joint
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stock companies because of statutory provisions. It is necessary even for other forms of business organizations for tax purposes. On the other hand cost and management accounting is purely optional, though it is desirable because of its immense utility. 10.Compulsory auditing: Auditing of accounts kept and statement prepared under financial accounting is compulsory for joint stock companies. But auditing of statement prepared under cost and management accounting is not compulsory for any organization. 11. Compulsory publication: The publication of statements prepared under financial accounting is compulsory for all joint stock companies, whereas the publication of statements prepared under cost and management accounting is not compulsory for any joint stock company. IMPORTANCE, UTILITY OR ADVANTAGES OF MANAGEMENT ACCOUNTING Management accounting is very helpful to management in every field of activity. It assists the management in the performance of the various managerial functions of planning, Controlling ,co-coordinating ,organizing, motivating and communicating 1. Increases efficiency: Management accounting encourages efficiency in business operations. The targets of different departments are fixed in advance and achievement of target forms a yardstick for measuring their efficiency. 2. Measurement of performance: the system of budgetary control and standard costing enable the measurement of performance. The performance will be good if the actual cost does not exceed the standard cost. 3. Effective management control: The tools and techniques of management accounting are helpful to management in planning, controlling and coordination of the activities of the concern. The techniques of budgetary control, standard costing and departmental operating statements greatly help in performing the controlling function. It involves the evaluation of actual performance to see whether the actual performance corresponds with the planned performance, and the taking up of remedial measures, if there are deviations or variations between the two.
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4. Maximum profitability: The use of management accounting may control or even eliminate various types of wastage, production defectives etc. The various management techniques are used to control cost of production. The reduction in cost of production increases in the sales volume, there by maximizes profit to the concern. 5. Maximum return on capital employed: Management accounting through the process of planning , control and coordination, helps the management in getting maximum return on capital employed. 6. Services to customers: The cost control devices employed in management accounting enable the reduction of prices. All employees in the concern are made cost conscious. Since, quality of goods is determined in advance the quality of products become good and hence customers are provided quality goods at reasonable prices. 7.Co-ordinating: refers to inter-linking of the different divisions of a business enterprise in such a way as to achieve the objectives of the business as a whole. Perfect co-ordination among the various divisions or departments of an enterprise, such as production, purchase, finance, personnel, and sales departments can be achieved through departmental budgets and reports, which form an integral part of management accounting. 8.Organising: refers to identification of total work in the undertaking, distribution of work, delegation of authority and responsibility and provision of physical facilities for the smooth functioning of the undertaking. Management accounting helps the management considerably in establishing sound system of internal control and internal audit and thereby helps in identifying inefficiency if any and makes them responsible for performing the job. 9.Motivating: refers to encouraging for maintaining high degree of morale in the organisation and creation of such conditions as to induce each person to give his best to realise the goals of the enterprise.

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For the purpose of motivating the personnel, the management should be in a position to find out whom to reward and whom to penalize. Management accounting helps the management to achieve this objective through periodical departmental profit and loss account, budgets and reports. 10. Communicating: One of the primary objectives of the management accounting is to keep the management fully informed about the latest position of the concern. This facilitates the management to take properly and timely decisions. It presents the different alternative plans before the management in a comparative manner. The performance of the various department s is also regularly communicated to the top management. *********

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