Management Accounting Module - V

Management
Accounting
MODULE - V
Introduction
Meaning
Accounting as an information system is the process of
identifying, measuring and communicating the
economic information of an organization to its users
who need the information for decision making.
It identifies transactions and events of a specific entity.
Definition
 A/c is “the art of recording, classifying and summarizing
in a significant manner and in terms of money,
transactions and events which are in part at least, of a
financial
character and interpreting the result thereof.”
 Management a/c “is a term used to describe the

accounting methods, systems and techniques which
coupled with special knowledge and ability assist
management in its task of maximizing profits and
minimizing losses.”
• --------- J. Batty
Objectives of Account:-
 To keep systematic record
 To ascertain the financial position of the business
 To portray the liquidity position
 To protect business properties
 To facilitate rational decision making
 To satisfy the requirements of law
Scope of Management Account
 Cost Accounting
 Tools and technique of management control
 Statistical and quantitative techniques
 Tax accounting
Functions of management account
 Furnishing relevant and vital data
 Compilation of data in suitable form
 Analysis and interpretation
 Planning
 Decision making
Nature
1. No Fixed Norms Followed
In financial accounting, we follow different norms and rules for creating ledgers and
other account books. But there is no need to follow fixed norms in management
accounting. Management accounting tool may be different from one organization to
other organization. Using of different tools of management accounting is fully
dependent on the persons who are using it. So, business policy of each organization
affects rules and regulation of applying management accounting.
2. Increase in Efficiency
It is the nature of management accounting that it is used for increasing in the
efficiency of organization. It scans the points of inefficiency through analysis of
accounting information. By taking action for improving, organization can increase the
efficiency.
3. Supplies Information not Decisions
Management accountant supplies accounting facts and information and also

provides interpretation, but decision making is fully dependent on higher
authorities.
4. Concerned with Forecasting
It is the temperament of management accounting that it is fully concerned with forecasting.

In management accounting, historical accounting information is analyzed through common
size financial statement, ratio analysis, fund flow analysis and accounting data tendency for
knowing the probability of next fact. So, all these things are especially useful for forecasting.
These forecasting may be related with following things
a) sales forecasting
b) production forecasting
c) earning forecasting
d) cost forecasting
Advantages
i) It helps in having complete record of business transactions.
ii)It gives information about the profit or loss made by the business at the
close of a year and its financial conditions. The basic function of
accounting is to supply meaningful information about the financial
activities of the business to the owners and the managers.
iii) It provides useful information form making economic decisions,
iv) It facilitates comparative study of current year’s profit, sales, expenses
etc., with those of the previous years.
v)It supplies information useful in judging the management’s ability to
utilise enterprise resources effectively in achieving primary enterprise
goals.
vi) It provides users with factual and interpretive information about
transactions and other events which are useful for predicting,
comparing and evaluation the enterprise’s earning power.
Limitations
i) Accounting is historical in nature: It does not reflect the current
position or worth of a business.
financial
Ii ) Facts recorded in financial statements are greatly influenced by
accounting conventions and personal judgements of the Accountant
or Management. Valuation of inventory, provision for doubtful debts
and assumption about useful life of an asset may, therefore, differ
from one business house to another.
iii)Accounting principles are not static or unchanging-alternative
accounting procedures are often equally acceptable. Therefore,
accounting statements do not always present comparable data
iv) Cost concept is found in accounting. Price changes are not
considered.
Money value is bound to change often from time to time. This is a
strong limitation of accounting.
v) Accounting statements do not show the impact of inflation.
vi)The accounting statements do not reflect those increase in net asset
values that are not considered realized.

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Management

 Management a/c “is a term used to describe the

Management accountant supplies accounting facts and information and also

4. Concerned with Forecasting

It is the temperament of management accounting that it is fully concerned with forecasting.

These forecasting may be related with following things

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