MANAGEMENT ACCOUNTING

CA. K.N.Modi

Management Accounting Information Systems

Collectin g Measurin g Storing Analyzin g Reportin g Processes Managin g Special Reports Product Costs Customer Costs Performance Reports Personal Communication

Economic Events

Inputs

Outputs

Users

The Management Process

The Management Process is defined by the following activities:
Planning Controlling Decision making

The Management Process (continued)

Planning requires setting objectives and identifying methods to achieve those objectives.

The Management Process (continued)

Controlling is the managerial activity of monitoring a plans implementation and taking corrective action as needed. Control is usually achieved with the use of feedback, which is information that can be used to evaluate or correct the steps being taken to implement a plan.

The Management Process (continued)

Decision making is the process of choosing among competing alternatives.

Conceptual Framework of Management Accounting

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Cost Accounting Systems

Know your costs The how to of cost accumulation & allocation

Managerial Decision Making

What difference will it make when a choice is to be made between alternative courses of action? We assume economically-rational organizations and de-emphasize the role of individual decision-makers

Planning & Control Systems

Focus on how organizations run by delegation & accountability Information asymmetry (subordinate knows what superior does not know) results in problems of harmony of objectives. We assume economically rational decision makers who have their own goals within the organization

Comparison of Management and Financial Accounting

Management Accounting
1. Internal focus 2. No mandatory rules 3. Financial and nonfinancial information; subjective information possible 4. Emphasis on the future 5. Internal evaluation and decisions based on detailed information 6. Broad, multidisciplinary

Financial Accounting
1. External focus 2. Externally imposed rules 3. Objective financial information 4. Historical orientation 5. Information about the firm as a whole 6. More self-contained

Historical Description of Management Accounting

1880 - 1925 Most of the product-costing and internal accounting procedures used in this century were developed Emphasis of inventory costing for external reporting Effort to improve the managerial usefulness of traditional cost systems Significant efforts have been made to radically change the nature and practice of management accounting

1925

1950s/60s

1980s/90s

Emerging Themes of Management Accounting

q q q q q q

Activity-Based Management Customer Orientation Cross-Functional Perspective Total Quality Management Time as a Competitive Element Efficiency

Partial Organization Chart Manufacturing Company

President

Production Vice-president

Financial Vice-president

Machining Supervisor

Assembly Supervisor

Controller

Treasurer

Controllers Functions

Treasurer's Functions

Role of Controller and Treasurer

Controller Treasurer
1. Collection of cash 2. Monitoring of cash payments 3. Monitors cash availability 4. Short-term investments 5. Short and long-term borrowing 6. Issuing of capital stock

1. Financial reports 2. Securities commission reporting 3. Tax planning and reporting 4. Performance reporting 5. Internal auditing 6. Budgeting 7. Accounting systems and internal controls