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Welcom

e
to
The Course
on
Managerial Accounting
(ACC 412)

What is Managerial Accounting?


Management accounting or managerial

accounting is the process of identifying,


analyzing, recording and presenting financial
information that is used for internally by the
management for planning, decision making and
control.
In contrast to financial accounting, managerial
accounting is concerned with providing helpful
information and reports to internal users such as
managers and entrepreneurs etc. so that they
can control and plan the business activities.

Few of the main areas, in which managerial

accounting is used are:


Planning and Budgeting: Managers use
managerial accounting techniques to plan what
to sell, how much to sell, what price is to be
charged to reimburse the costs of production
and also earn an optimal profit.
Also they have to plan how to finance the
operations and how to manage cash etc.
This is very important to keep the business
operations working smoothly.

Decision Making: When managers have to

decide whether or not to start a particular


project, they need managerial accounting
information to estimate the benefits of various
opportunities and decide which one to choose.
Measurement of Performance: Managers have
to compare the actual results of operations to
budgeted figures to evaluate the performance of
the business.
They use managerial accounting techniques
such as standard costing to evaluate the
performance of specific departments.
They then make necessary adjustments in those
departments which are not performing well.

Work of Management
Planning

Directing and
Motivating

Controlling

Planning and Control Cycle


Formulating Longand
Short-Term Plans
(Planning)
Comparing Actual
to
Planned
Performance
(Controlling)

Decisio
n
Making
Measuring
Performance
(Controlling)

Begin

Implementing
the Plans
(Directing and
Motivating)

Objectives of Management
Accounting
The basic objective 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:

Provides data: Management accounting serves as

an important source of data for management


planning.
The accounts and documents are a store-house of
a vast quantity of data about the past progress of
the enterprise, facilitating forecasts for the future.
Modifies data: The accounting data required for
managerial decisions is properly collected 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.

Analyses and interprets data: The accounting

data is probed 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.
Serves as a means of communication:
Management accounting provides a means of
communicating management plans upward,
downward and outward through the organization.
Initially, it means 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.

Facilitates control: Management accounting helps

in translating given 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.
Uses 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.

Importance of Managerial Accounting


Planning
Controlling
Decision Making
Problem Solving
Reduces Expenses
Improves Cash Flow
Increases Financial Returns

Scope Of Management Accounting


The scope or field of management accounting is

very wide and broad based and it includes a


variety of aspects of business operations.
The main aim of management accounting is to
help management in its functions of planning,
directing, controlling and areas of specialization
included within the admit of management
accounting.
The scope of management accounting can be
6. Interpretation of Data
1. Financial
Accounting
studied
as follows:
2. Cost Accounting

7. Reporting to

3. Budgeting and

Management
8. Internal Audit and Tax
Accounting
9. Methods of Procedures

Forecasting
4. Inventory Control
5. Statistical Method

Managerial Accounting and


Financial Accounting
Managerial accounting
provides information
for managers of an
organization who
direct and control
its operations.

Financial accounting
provides information
to stockholders,
creditors and others
who are outside
the organization.

Differences Between Financial and


Managerial Accounting

What is Cost Accounting?


Cost accountingis a process of collecting,

recording, classifying, analyzing, summarizing,


allocating and evaluating various alternative
courses of action & control of costs.
Its goal is to advise the management on the most
appropriate course of action based on the cost
efficiency and capability.
It provides the detailed cost information that
management needs to control current operations
and plan for the future.
Cost accounting examines the cost structure of a
business. It does so by collecting information about
the costs incurred by a company's activities,
assigning selected costs to products and services
and other cost objects, and evaluating the
efficiency of cost usage.

Cost accounting is mostly concerned with

developing an understanding of where a company


earns and loses money, and providing input into
decisions to generate profits in the future.
Key activities of cost accounting include:
Defining costs as direct materials, direct labor, fixed

overhead, variable overhead, and period costs


Assisting the engineering and procurement departments in
generating standard costs, if a company uses a standard
costing system
Using an allocation methodology to assign all costs except
period costs to products and services and other cost objects
Defining the transfer prices at which components and parts
are sold from one subsidiary of a parent company to
another subsidiary
Examining costs incurred in relation to activities conducted,
to see if the company is using its resources effectively

Highlighting any changes in the trend of various costs

incurred
Analyzing costs that will change as the result of a
business decision
Evaluating the need for capital expenditures
Building a budget model that forecasts changes in
costs based on expected activity levels
Determining whether costs can be reduced
Providing cost reports to management, so they can
better operate the business
Participating in the calculation of costs that will be
required to manufacture a new product design
Analyzing the system of production to understand
where bottlenecks are positioned, and how they
impact the throughput generated by the entire
manufacturing system.

Cost accountants use a multitude of tools to

accumulate and interpret costs, including job costing,


process costing, standard costing, activity-based
costing, throughput analysis, and direct costing.
Cost accounting is a source of information for the
financial statements, especially in regard to the
valuation of inventory.
However, it is not directly involved in the generation
of financial statements.
The difference between cost accounting and
management accounting is very crucial as the users
of both the accounting system are the internal
management of the organization.
So, it is believed that they are one and the same
thing, but they are quite different from each other in
many areas.

Basis of
comparison

Cost accounting

Management
accounting

Meaning

The recording,
classifying and
summarising of cost
data of an
organisation is known
as cost accounting.

The accounting in which


the both financial and
non-financial information
are provided to
managers is known as
Management Accounting.

Information
Type

Quantitative.

Quantitative and
Qualitative.

Objective

Ascertainment of cost
of production.

Providing information to
managers to set goals
and forecast strategies.

Scope

Narrow, as it is limited Its area of operation is


only up to the cost
wide.
information.

Specific
Procedure

Yes

No

Recording

Records past and

It gives more stress on