1.

1 INTRODUCTION:

Accounting is the process of recording, classifying, summarizing, analyzing and interpreting the
financial transactions of the business for the benefit of management and those parties who are
interested in business such as shareholders, creditors, bankers, customers, employees and
government. Thus, it is concerned with financial reporting and decision making aspects of the
business.

Branches of Accounting

Accounting can be groupedinto three categories:

1. Financial Accounting

2. Cost Accounting, and

3. Management Accounting

1.1.1 Financial Accounting

The term ‘Accounting’ unless otherwise specifically stated always refers to ‘Financial
Accounting’. Financial Accounting is commonly carried on in the general offices of a business.
It is concerned with revenues, expenses, assets and liabilities of a business house.

Financial Accounting has two-fold objectives, viz.

1. To ascertain the result of the business in terms of earning of profits or suffering of losses, and

2. To know the financial position of the concern.

The following are the functional aspects of financial accounting:

1.Dealing with Financial Transactions

2. Recording of information

3. Classification of Data

4. Summarizing Group of Information

5. Analyzing

6. Interpreting the Financial Information

7. Communicating the Results

Financial Accounting is like a post-mortem report. At the most it can reveal what has happened
so far, but it does not have any control over the past happenings.

The limitations of financial accounting are as follows:

1. It records only quantitative information.

2. It records only the historical cost. The impact of future uncertainties has no place in financial
accounting.

3. It does not take into account price level changes.

4. It provides information about the whole concern. Product-wise, process-wise, department-

wise or information of any other line of activity cannot be obtained separately from the financial
accounting.

5. Cost figures are not known in advance. Therefore, it is not possible to fix the price in advance.
It does not provide information to increase or reduce the selling price.

6. As there is no technique for comparing the actual performance with that of the budgeted
targets, it is not possible to evaluate performance of the business.

7. It does not tell about the optimum or otherwise of the quantum of profit made and does not
provide the ways and means to increase the profits.

8. In case of loss, whether loss can be reduced or converted into profit by means of cost control
and cost reduction? Financial Accounting does not answer such question.

9. It does not reveal which departments are performing well? Which ones are incurring losses
and how much is the loss in each case?

10. It does not provide the cost of products manufactured

11. There is no means provided by financial accounting to reduce the material losses, i.e.
wastage, scrap, spoilage and defectives.

12. Can the expenses be reduced which results in the reduction of product cost and if so, to what
extent and how? There is no answer to these questions in financial accounting.

13. It is not helpful to the management in taking strategic decisions like replacement of assets,
introduction of new products, discontinuation of an existing line, expansion of capacity, etc.

14. It provides ample scope for manipulation like overvaluation or undervaluation. This
possibility of manipulation reduces the reliability.
 15. It is technical in nature. A person not conversant with accounting has little utility of the
financial accounts.

1.1.2 Cost Accounting

The Institute of Cost and Works Accountants, India defines cost accounting as, “the technique
and process of ascertainment of costs. Cost Accounting is the process of accounting for costs,
which begins with recording of expenses or the bases on which they are calculated and ends with
preparation of statistical data”.

To put it simply, when the accounting process is applied for the elements of costs (i.e.,
Materials, Labour and Other expenses), it becomes Cost Accounting.

The main objectives of cost accounting are as follows:

1. Cost Ascertainment

2. Cost Control

3. Cost Reduction

4. Fixation of Selling Price

5. Providing information for framing Business policy.

Limitations of Cost Accounting

i)GroundedonEstimation: As cost accounting relies heavily on predetermined data, it is not

reliable.

ii)No StandardizedProcedure:As there is no uniform procedure, with the same information

different results may be arrived by different cost accountants.

iii)Conventions and Estimates: There are number of conventions and estimates in preparing
cost records such as materials are issued on an average (or) standard price, overheads are charged
on percentage basis, Therefore, the profits arrived from the cost records are not true.

iv) Formalities: Many formalities are to be observed to obtain the benefit of cost accounting.
Therefore, it is not applicable to small and medium firms.

v) Expensive: Cost accounting is expensive and requires reconciliation with financial records.

vi) AdditionalTool: Cost Accounting is an additional tool not an essential tool and an enterprise
can survive even without cost accounting.
vii) Secondary Data: Cost Accounting depends on financial statements for a lot of information.
The errors or short comings in that information creep into cost accounts also.

1.1.3 Management Accounting

Management Accounting is comprised of two words ‘Management’ and ‘Accounting’. It means

the study of managerial aspect of accounting. The emphasis of management accounting is to
redesign accounting in such a way that it is helpful to the management in formation of policy,
control of execution and appreciation of effectiveness.

Management Accounting can be viewed as Management-oriented Accounting. Basically it is

the study of managerial aspect of financial accounting,i.e.“accounting in relation to management
function". It is developed mainly to help the management in the discharge of its functions and for
taking various decisions. The primary task of management accounting is, therefore, to redesign
the entire accounting system so that it may serve the operational needs of the firm. It furnishes
definite accounting information-past, present or future, which may be used as a basis for
management action. The financial data are so devised and systematically developed that they
become a unique tool for management decision.Hence, Management Accounting involves the
study of accounting information and techniques that managers use in analyzing information.

Management Accounting is not a specific system of accounts, but could be any form of
accounting which enables a business to be conducted more effectively and efficiently.
Management Accounting, therefore, appears as the extension of the horizon of cost accounting
towards emerging areas of management. Management Accounting is largely concerned with
providing economic information to managers for achieving organizational goals.Managers use
management accounting information to choose strategy to communicate it and to determine how
best to implement it. They use management accounting information to coordinate their decisions
about designing, producing and marketing a product or service.

1.2 DEFINITION OF MANAGEMENT ACCOUNTING:

Anglo-American Council of Productivity: “ManagementAccounting is the presentation of

accounting information in such a way as to assist the management in creation of policy and the
day to day operation of an undertaking".

Institute of Chartered Accountants of England and Wales: “Any form of accounting which
enables a business to be conducted more efficiently can be regarded as Management
Accounting”.

American Accounting Association: “It includes the methods and concepts necessary for
effective planning for choosing among alternative business actions and for control through the
evaluation and interpretation of performances.”
Institute of Cost and Management Accountants, London: “Management Accounting is the
application of professional knowledge and skill in the preparation of accounting information in
such a way as to assist management in the formulation of policies and in the planning and control
of the operation of the undertakings”.

Institute of Management Accountants (IMA): "Management Accounting is a profession that

involves partnering in management decision making, devising planning and performance
management systems, and providing expertise in financial reporting and control to assist
management in the formulation and implementation of an organization's strategy"

J. Batty: “Management Accountancy is the term used to describe the accounting methods,
systems and techniques which, with special knowledge and ability, assist management in its task
of maximizing profit or minimizing losses.”

Brown and Howard: “Management Accounting is that aspect of accounting which is concerned
with the efficient management of a business through the presentation of management of such
information as will facilitate efficient and opportune planning and control.”

Robert Anthony: “Management Accounting is concerned with accounting information which is

useful to management”

CIMA, London: “Management Accounting is an integral part of management concerned with

identifying, presenting and interpreting information used for: (a) formulating strategy; (b)
planning and controlling activities; (c) decision taking; (d) optimizing the use of resources; (e)
disclosure to shareholders and others external to the entity; (f) disclosure to employees; (g)
safeguarding assets”.

1.3 NATURE /CHARACTERISTICS OF MANAGEMENT ACCOUNTING:

1. Grounded onAccounting Information

Management Accounting is based on accounting information. Management Accounting is a

service function and it provides necessary information to different levels of management.
Management Accounting involves the presentation of information in a way that suits the
managerial needs. The accounting data collected by accounting department is used for reviewing
various policy decisions.

2. Cause and Effect Analysis

The role of financial accounting is limited to find out the ultimate result, i.e., profit and loss,
whereas management accounting goes a step further. Management Accounting discusses the
cause and effect relationship. The reasons for the loss are probed and the factors directly
influencing the profitability are also analyzed. Profits are compared to sales, different
expenditures, current assets, interest payables, share capital, etc. to give meaningful
interpretation.

3. Use of Special Techniques and Concepts

Management Accounting uses special techniques and concepts according to necessity, to make
accounting data more useful. The techniques usually used include financial planning and
analyses, standard costing, budgetary control, marginal costing, project appraisal etc.

4. Aids in Taking Important Decisions

It supplies necessary information to the management which may be useful for its decisions. The
historical data is studied to see its possible impact on future decisions. The implications of
various decisions are also taken into account.

5. Aims at Achieving Objectives

Management Accounting uses the accounting information in such a way that it helps in
formatting plans and setting up objectives. Comparing actual performance with targeted figures
will give an idea to the management about the performance of various departments. When there
are deviations, corrective measures can be taken immediately with the help of budgetary control
and standard costing.

6. No Fixed Norms

No specific rules are followed in management accounting as that of financial accounting. Though
the tools are the same, their use differs from concern to concern. The deriving of conclusions
also depends upon the intelligence of the management accountant. The presentation will be in the
way which suits the concern most.

7. ImprovesEfficiency

The purpose of using accounting information is to increase efficiency of the concern. The
performance appraisal will enable the management to pin-point efficient and inefficient spots.
Efforts are made to take corrective measures so that efficiency can be improved. The constant
review will make the staff cost conscious.

8. DeliversInformation and not Decision

Management accountant is only to guide to take decisions. The data is to be used by the
management for taking various decisions. ‘How is the data to be utilized’ will depend upon the
caliber and efficiency of the management.
9. Involvedin Forecasting

The management accounting is concerned with the future. It helps the management in planning
and forecasting. The historical information is used to plan future course of action. The
information is supplied with the object to guide management for taking future decisions.

1.4 SCOPE OF MANAGEMENT ACCOUNTING

The advancement in information technology and the ever growing appetite of information
consumers in this information age has broadened the scope of management accounting to include
things that were not included in the discipline some ten years ago.Management Accounting has
moved from a mere information gathering and processing system to an all-encompassing
business solution box.

Management Accounting is concerned with presentation of accounting information in the most

useful way for the management. Its scope is, therefore, quite vast and includes within its fold
almost all aspects of business operations. However, the following areas can rightly be identified
to be within the ambit of management accounting:

(i) Financial Accounting: Management Accounting is mainly concerned with the

rearrangement of the information provided by financial accounting. Hence, management cannot
obtain full control and coordination of operations without a properly designed financial
accounting system.

(ii) Cost Accounting: Standard costing, marginal costing, opportunity cost analysis, differential
costing and other cost techniques play a useful role in operation and control of the business
undertaking.

(iii) Revaluation Accounting: This is concerned with ensuring that capital is maintained intact
in real terms and profit is calculated with this fact in mind.

(iv) Budgetary Control: This includes framing of budgets, comparison of actual performance
with the budgeted performance, computation of variances, finding their causes, etc.

(v) Inventory Control: It includes control over inventory from the time it is acquired till its
final disposal.

(vi) Statistical Methods: Graphs, charts, pictorial presentation, index numbers and other
statistical methods make the information more impressive and intelligible.

(vii) Interim Reporting: This includes preparation of monthly, quarterly, half yearly income
statements and the related reports, cash flow and funds flow statements, scrap reports, etc.

(viii) Taxation: This includes computation of income in accordance with the tax laws, filing of
returns and making tax payments.
(ix) Office Services: This includes maintenance of proper data processing and other office
management services, reporting on best use of mechanical and electronic devices.

(x) Internal Audit: Development of a suitable internal audit system for internal control.

(xi)Management Information System [MIS]: Management Accounting serves as a centre for

collection and dissemination of information.MIS is an essential part of Management Accounting.

1.5 OBJECTIVES OF MANAGEMENT ACCOUNTING

The fundamental objective of management accounting is to enable the management to maximize

profits or minimize losses. The evolution of management accounting has given a new approach
to the function of accounting. The main objectives of management accounting are as follows:

1. Planning and Policy Formulation

Planning involves forecasting on the basis of available information, setting goals, framing
polices, determining the alternative courses of action and deciding on the programme of
activities. Management accounting can help greatly in this direction. It facilitates the preparation
of statements in the light of past results and gives estimation for the future.

2. Interpretation Process

Management Accounting is to present financial information to the management. Financial

information is technical in nature.

Therefore, it must be presented in such a way that it is easily understood. It presents accounting
information with the help of statistical devices like charts, diagrams, graphs, etc.

3. Assists in Decision-Making Process

With the help of various modern techniques, management accounting makes decision-making
process more scientific. Data relating to cost, price, profit and savings for each of the available
alternatives are collected and analyzed and thus it provides a base for taking sound decisions.

4. Controlling

Management Accounting is a useful tool for managerial control. Management Accounting tools
like standard costing and budgetary control are helpful in controlling performance. Cost control
is affected through the use of standard costing and departmental control is made possible through
the use of budgets. Performance of each and every individual operation is controlled with the
help of management accounting.
5. Reporting

Management Accounting keeps the management fully informed about the latest position of the
concern through reporting. It helps management to take proper and quick decisions. The
performances of various departments are regularly monitored and reported to the top
management.

6. Facilitates Organizing

Since management accounting stresses more on Responsibility Centres with a view to control
costs and fixation of responsibilities, so it also facilitates decentralization to a greater
extent.Thus, it is helpful in setting up effective and efficient organization framework.

7. Facilitates Coordination of Operations

Management Accounting provides tools for overall control and coordination of business
operations. Budgets are important means of coordination.

1.6 IMPORTANCE/FUNCTIONS OF MANAGEMENT ACCOUNTING

The basic function of management accounting is to assist the management in performing its
functions effectively. The functions of the management are planning, organizing, directing and
controlling. Management Accounting helps in the performance of each of these functions in the
following ways:

(i) Provides Data: Management Accounting serves as a vital source of data for management
planning. The accounts and documents are a repository of a vast quantity of data about the past
progress of the enterprise which are a must for making forecasts for the future.

(ii) Modifies Data: The accounting data required for managerial decisions is properly compiled
and classified. For example, purchase figures for different months may be classified to know
total purchases made during each period product-wise, supplier-wise and territory-wise etc.

(iii) Analyses and Interprets Data: The accounting data is analyzed meaningfully for effective
planning and decision-making. For this purpose the data is presented in a comparative form.
Ratios are calculated and likely trends are projected.

(iv) Serves as a Means of Communicating: Management Accounting provides a means of

communicating management plans upward, downward and outward through the organization.
Initially, it is a means of identifying the feasibility and consistency of the various segments of the
plan. At later stages it keeps all parties informed about the plans that have been agreed upon and
their roles in these plans.

(v) Facilitates Control: Management Accounting helps in translatinggiven objectives and

strategy into specified goals for attainment by a specified time and secures effective
accomplishment of these goals in an efficient manner. All this is made possible through
budgetary control and standard costing which is an integral part of management accounting.

(vi) Uses also Qualitative Information: Management Accounting does not restrict itself to
financial data for helping the management in decision making but also uses such information
which may not be capable of being measured in monetary terms. Such information may be
collected form special surveys, statistical compilations, engineering records, etc.

1.7 ROLE OF MANAGEMENT ACCOUNTING

The role of management accounting can be summarized in following points:

1. Helping Forecast the Future:

Forecasting aids decision-making and answering questions, such as: Should the company invest
in more equipment? Should it diversify into different markets? Should it buy another company?
Management Accounting helps in answering these critical questions and forecasting the future
trends in business.

2. Helping in Make-or-Buy Decisions:

Is it cheaper to procure materials or a product from a third party or manufacture them in-house?
Cost and production availability are the deciding factors in this choice. Through management
accounting, insights will be developed which will enable decision-making at both operational
and strategic levels.

3. Forecasting Cash Flows:

Predicting cash flows and the impact of cash flow on the business is essential. How much cost
will the company incur in the future? Where will its revenues come from and will the revenues
increase or decrease in the future? Management Accounting involves designing of budgets and
trend charts, and managers use this information to decide how to allocate money and resources to
generate the projected revenue growth.

4. Helping Understand Performance Variances:

Business performance discrepancies are variances between what was predicted and what is
actually achieved. Management Accounting uses analytical techniques to help the management
build on positive variances and manage the negative ones.

5. Analysing the Rate of Return:

Before embarking on a project that requires heavy investments, the company would need to
analyse the expected rate of return (ROR). If given two or more investment opportunities, how
should the company choose the most profitable one? In how many years would the company
break-even on a project? What are the cash flows likely to be? These are all vital questions that
can be answered through management accounting.

1.8 ROLE OF MANAGEMENT ACCOUNTANT

The management accountant, often referred to as controller, is the managers of accounting

information used in planning, control and decision making areas. He is responsible for collecting,
processing and reporting information that well help managers in their planning, controlling and
decision making activities. He participates in all accounting activities within the organization.

The following are the Roles of Management Accountant:

1. Participating in Management Process: The management accountant occupies a pivotal

position in the organization. He performs a staff function and also has line authority over the
accountant and other employees in his office. He educates executives on the best use of
accounting information.

2. Maintaining optimum Capital Structure: Management accountant has a major role to play
in raising of funds and their application. He has to decide about maintaining a proper mix of debt
and equity. The raising of funds through debt is cheaper because of tax benefits and a proper
leverage leads to trading on equity.

3. InvestmentOpportunities: A management accountant can assist either person or a firm

regarding the investment in different ways. He can suggest how, when and where the investment
should be made so that an investor or the firm canearn maximum return.

4. Financial Investigations: A management accountant can assist the management about the
financial investigations which is extremely desired to determine the financial position for the
interested parties. Relating to issue of shares, amalgamation or mergers, or reconstructions etc to
ascertain the reason of decreasing profit or increasing costs, it so happened.

5. Long-term and Short –term Planning: Management accountant plays an important role in
forecasting future business and economic events for making future plans i.e., short term and
long-term plans, formulating corporate strategy, market study etc.

6. Participating in Management Process: The management accountant occupies a pivotal

position in the organization. He performs a staff function and also has line over the accountant
and other employees in his office. He educates executives on the need for collecting information
and on the ways of using it. He shifts relevant information from the irrelevant and reports the
same in a clear form to the management and sometimes to interested external parties.

7. Decision Making; Management accountant provides necessary information to management in

taking short-term decision e.g. optimum product mix, make or buy, lease or buy, pricing of
product, discontinuing a product etc. and long-term decisions e.g., capital budgeting,investment
appraisal, project financing. However, the job of management accountant is limited to the
adequacy of required information, both in a comprehensive as well as reliable form for decision
making purposes.

8. Control: The management accountant analyses accounts and prepares reports e.g., standard
costs, budgets, variance analysis and interpretation, cash and funds flow analysis, management of
liquidity, performance evaluation and responsibility accounting etc. for control.

9.Developing Management Information System: The routine reports as well as reports for long
term decision making are forwarded to managerial personnel at all levels to take corrective
action at the right time and also uses these reports for taking important decisions.

10. Stewardship Accounting: Management accountant designs the framework of cost and
financial accounts and prepares reports for routine financial and operational decision making.

11. CorporatePlanning: He can assist management for long-term planning and advise
management regarding amalgamation or mergers or reconstructions including financial planning
to see whether effective utilization of resources is made or not. Thus, the role of management
accountant cannot be ignored. As such, his services are primarily desired for the efficient
management of an undertaking.

1.9 DISTINCTION BETWEEN MANAGEMENT ACCOUNTING, FINANCIAL

ACCOUNTING, COST ACCOUNTING

1.9.1 DIFFERENCE BETWEEN COST ACCOUNTING AND FINANCIAL ACCOUNTING

Sl No Basis Cost Accounting Financial Accounting

1 Purpose: The main purpose of Cost The main purpose of Financial
Accounting is to analyze, Accounting is to record financial
ascertain and control costs transactions and prepare financial
statements.

2 Decision The Cost Accounts are basically Financial accounts are of limited
Making: designed to facilitate decision use in decision making.
making in the areas of
production, purchase, sales etc.
3 Analysis of The Cost Accounting shows the Financial Accounting shows the
Cost and detailed cost and profits for each overall profit/loss of the entire
Profit: product, process, job, contract organization.
etc.
4 Transactions Cost Accounting keeps records Financial Accounts keep records
Recorded: of both external and internal of only external transactions with
transactions. outsiders.

5 Access: In Cost Accounting the outsiders In Financial Accounting anybody

 generally have no access to cost can have access to Financial
records. Statements of Companies.

6 Control: Cost Accounting Control all Financial Accounting does not

elements of Costs. exercise adequate control over
material, labour and overhead
costs.

7 Profit or Loss Cost Accounting determines the Financial Accounting determines

profit or loss of each product, the profit or loss of the entire
process, job and department. business.

8 Units Cost Accounting records both Financial Accounting records only

monetary and physical units monetary units in the books of
such as labour hour, machine accounts.
hour etc.
9 Valuation of Closing Stock is valued at cost In Financial Accounting Closing
Closing price only in Cost Accounting. Stock is valued at cost or market
Stock price {Net Realizable value}
whichever is lower.

10 Audit Cost Accounting need not be Financial Accounting needs a

followed by a system of external system of independent audit of the
audit. financial records by an external
auditor.

11 Tax Cost Accounting does not form a Financial Accounting forms a

Assessment basis for tax assessment. basis for determination tax
liability of the business.

12 Parties Cost Accounting serves the Financial Accounting serves the

information needs of the information needs of owners,
management. creditors, employees and the
society at large.

13 Mandatory Installing a costing system is Maintaining Financial Accounting

purely optional. is mandatory.
14 Lack of There are no fixed rules and There are fixed rules and
Uniformity: regulations in Cost regulations in Financial
Accounting.Therefore different Accounting.
cost accounting system may be
followed by different firms in
the same industry which makes
comparison difficult.
1.9.2DIFFERENCE BETWEEN COST ACCOUNTING AND MANAGEMENT
ACCOUNTING

The important differences between Cost Accounting and Management Accounting are as
follows:

Sl No Basis Cost Accounting Management Accounting

1 Purpose: The purpose of Cost Accounting The purpose of Management
is the ascertainment of cost at Accounting is to provide
each stage of production. information to the management
for decision making.
2 Basis: Cost Accounting is prepared Management Accounting purely
mainly on the basis of past and aims at the future based on the
less emphasis is given for the past information.
future.
3 Preparation: Cost Accounting is prepared on Management Accounting is
the basis of some rules and prepared without adopting any
regulations prescribed by the specific and rigid rules. It may be
ICAI (Institute of Cost prepared according to the will of
Accountants of India). the managerial personnel.

4 Reports: The Reports of the Cost The reports of the Management

Accounting are subject to Accounting are not subject to
statutory audit. statutory audit.

5 Useful: The reports of the Cost The reports of the Management

Accounting are useful both to Accounting are useful only for the
the internal and external parties. internal parties.

6 Scope: Cost Accounting does not Management Accounting includes

include tax planning and tax tax planning and tax accounting.
accounting.

7 Evolution: Cost Accounting evolves due to Management Accounting evolves

the limitation of financial due to the limitations of cost
accounting, accounting. It is the managerial
aspects of financial accounting
and cost accounting.
8 Maintenance The maintenance of records is The maintenance of records is
of Records: compulsory for complying the purely voluntary and for internal
statutory requirements in use of management of the
selected industries as notified by Company.
Govt. from time to time.
9 Planning Cost Accounting is mainly Management Accounting is
Aspect: concerned with short-term concerned with short term as well
planning. as long term planning of the
 organization.

10 Installation Cost Accounting can be installed Management Accounting system

of System: without the help of the cannot be properly installed
Management Accounting in the without a proper cost accounting
organization. system.

11 Derivation of Cost Accounting data are Management Accounting data are

Data: derived basically from financial derived from both Cost Accounts
accounts. as well as from Financial
Accounts.

12 Status: The status of the Cost The status of the Management

accountant in the organization accountant is higher than Cost
comes after the management accountant in the organization due
accountant. to direct participation in decision
making process.

1.9.3DIFFERENCE BETWEEN FINANCIAL ACCOUNTING AND MANAGEMENT

ACCOUNTING

Sl No Basis Financial Accounting Management Accounting

1 Objective Financial Accounting aims at The aim of Management
recording business transaction Accounting is to prepare various
systematically to ascertain profit statements for managerial
or loss and financial position at planning, control and decision
the end of the financial year. making.

2 Time Period In Financial Accounting the InManagement Accounting the

accounts are prepared for a reports are prepared from time to
particular period. time to update with the changing
business environment.
3 Audit In Financial Accounting under InManagement Accounting audit
Company law Financial is optional..
accounts are subject to
compulsory Audit.
4 Principles Financial Accounting is In Management Accounting no set
prepared as per Generally of standing principles are
Accepted Accounting principles followed.
(GAAP).

5 Nature Financial Accounting is The Management Accounting is

concerned with historical data. It concerned with both historical
records only those transactions data and estimated data.
which have already taken place.
 Thus, the accounts prepared here
are like post-mortem report.
6 Publication In Financial Accounting, In Management Accounting the
Financial Statements are statements and reports are not
published annually for external published. They are meant for
parties interested in the internal use of the management.
accounting information.
7 Quickness In Financial Accounting, In Management Accounting,
reporting is slow and time reporting is very quick as it is
consuming. Hence, one has to meant for decision making.
wait till the end of the
accounting year to get the
financial statements.
8 Nature of Financial Accounting is Management Accounting is
Information concerned with quantitative concerned with both qualitative
information expressed in terms and quantitative information.
of money.
9 Reporting In Financial Accounting, InManagement Accounting, the
Financial reports are prepared reports are prepared for internal
not only for the organization but use only.
for others interested in the
accounting information of the
business.
10 Legal Preparation of financial accounts Management Accounting is not
Compulsion is mandatory to comply with compulsory.
statutory requirements.

1.10 ROLE OF MANAGEMENT ACCOUNTING IN MODERN BUSINESS:

Management Accounting is required to satisfy the demands of the current economic

environment. There is a need for more innovative and useful management accounting techniques
to improve productivity, to reduce costs, to improve quality, to determine accurate product costs
to satisfy managerial needs of planning, decision making and control.

1. Activity-Based Costing (ABC) and Management:

The demand for more accurate and relevant management accounting information has led to the
development of activity-based costing and activity-based management. Activity-based costing
improves the accuracy of assigning costs by first tracing costs to activities and then to products
or customers that consume these activities. Process value analysis, on the other hand, emphasizes
activity analysis— trying to determine why activities are performed and how well they are
performed.