Management Accounting

Meaning and Definition

Management Accounting may be defined as the process of identification
,measurement, accumulation, interpretation and communication of financial
as well as operating information.
Both type of information is used by managers to plan, evaluate and control
the use and accountability of the resources of the firm .

 The term management accounting refers to a system of collection and

presentation of relevant information ,financial as well as other, relating to an
enterprise for helping managers in Planning ,controlling and decision making.
it provides information required by management for different purposes as
follows:

Objectives of management
To formulate plans and policy

Role of management accountant

The Management Accountant is an officer entrusted with the
Management Accounting functions in an organization. His
designation and position from company . In a large
companies his designation may be chief accountant,
controller,financial controller etc. He is a staff official. He
acts in close coordination with the cost accountant,the
internal auditor and the general accountant. The following
are the functions of the management accountant.
1. Planning for control:
Management accountant establishes,coordinates and
maintains an integrated plan for control of operations.
Such a plan includes profit planning,sales forecast,expense
budgets,cost standard etc.

2.Evaluation of performance:
He should evaluate various policies and
programmes. The effectiveness of planning and
procedures to attain the objectives of the organisation
depends upon the caliber of the management
accountant.
3.Reporting:
He has to compare the actual performance with
plans and standards. The results of the operations to be
interpreted and reported to all levels of management.
This done through compilation of accounting records,
statistical records and reports

5. Protection of Assets:
It is another function of a management accountant. It
is performed through the maintenance of internal control,
auditing and proper insurance coverage to assets.
6. Appraisal of external effects:
He is assess the effects of various economic and fiscal
policies of the government.
He has interpret to the management their effects on
business.

Advantages and utility of Management Accounting

Better planning of the functions and activities of the organization
Better control of the activities is ensured by the techniques of Management
Accounting.
Management Accounting helps in better appraisal of the performance of
employees
Management Accounting increases the efficiency and effectiveness of the
management .
Management accounting ensures the attainment of goals and objectives of
the organisation.
See Next slide for detail.

Helps in decision making.

It helps to take decisions relating to fixing prices,make or buy
decision,acceptance of additional orders,selection of suitable
product mix etc;These decisions are taken with the help of
marginal costing.
Helps in planning.
Planning includes profit planning,preparation of
budgets,programs of capital investment and financing.These
plans are taken with the help of
budgetary control,capital budgeting and cost volume profit
analysis.
Facilitates communication.
It provides with up-to-date information by means of periodical
reports.These reports assist management in evaluation of
performance and control.

Helps in Coordinating.
This facilitates clear definition of departmental goals and
Coordination of their activities.( relationship among various
depts. in a orgn )
Interpretation of financial information.
It presents information in a simple and purposeful manner. It
facilitates quick decision making.
Economic appraisal.
It includes appraisal of social,economic forces and government
policies. It helps the management in assessing their impact on
the business.
Improving efficiency.
It is a convenient tool to improve the performance.With the help
of ratios and budgets all the departmental activities can be
improved and maintained.It assists the management in location
of weak spots ( sick areas ) and in taking corrective actions

Scope of Management Accounting

Financial accounting:
It provides historical information. It forms basis for future.securing full control
& coordination of a business.
Cost accounting:
It provides various techniques of costing.It assisting the mgt in the
formulation of policies & the operations of the undertakings.

Budgetary

control:

It helps to compare the actual performance with

budgeted performance, measuring variations finding out
their causes & suggesting remedial measures.
Inventory

control:

It is concerned with control over inventory from the time it is

received till its disposal.
Reporting:

It includes preparation of periodical income statements &

other related reports like fund flow statements & cash flow
statement. These statements helps to the management to
evaluation of performance & decision making.

 Statistical methods:
Statistical tools like graphs, charts, index numbers are used
for presentation of information to various departments.
Taxation:
It includes preparation of income statement, assessing the
effect of tax on capital expenditure ,proposal & pricing.
Methods and procedures:
They deal with organizational methods for cost reduction,
procedures for improving the efficiency of accounting &
office operations.
Internal audit:
This refers to the establishment of a suitable internal audit
system for internal control.
Office services:
They cover a wide range of activities like data processing,
filing, copying, printing, communication etc.