MANAGEMENT ACCOUNTING

Presented by: Tanvi Gupta

Management Accounting

The branch of accounting that produces information for use by managers within an organisation for effective decision making. It is the process of identifying, measuring, accumulating, analysing, interpreting and communicating information that helps managers fulfill organisational objectives.

Nature/features/characteristic s
1. Accounting information: MA is based on fin. and cost accounting info and uses the info. for better decision making. 2. Quantitative as well as qualitative data: 3. Cause and effect relationship: If there is a loss, why is it so? If profit, what are the factors? Etc.

4. Tools & techniques: Budgetary control, FFS, CFS, Ratio analysis 5. Not rigid: Presentation of info at the discretion of the mgt. Every org follows its own rules to analyse the data and to draw the conclusions 6. Supplies info, not decision:

7. Decision-making:
8. Increase in efficiency: 9. Future-oriented:

SCOPE

Financial accounting Cost accounting Financial management Budgeting and forecasting Financial statement analysis Reporting Control procedures Tax accounting Internal audit Statistical techniques

Situations in which management accounting can be helpful:

There are 3 possible ways of assembling a Boeing plane. Which is the most cost-effective approach? General Mills is coming with a new marketing plan under which it decides to distribute free samples in the mail which will increase its annual sales by 4%(as per the market research). Will the cost of the free samples be more or less than the profits from the added sales? Bank of America offers free checking to customers who keep a minimum balance of $500 in their FirstChoice Minimum Bance account. How much does it cost the bank to provide this free service? A company wishes to expand its product variants. Would the cost of increasing the range be less or more than the estimated demand( in monetary terms)?

Users of accounting information

Internal : managers within an organisation. External : investors, shareholders, banks, creditors, government agencies, rating agencies.

( Financial accounting is for external users and management accounting for internal ones. )

DIFFERENCES BETWEEN FINANCIAL & MANAGEMENT ACCOUNTING

BASIS

MANAGEMENT ACCOUNTING
Organisation managers at various levels.

FINANCIAL ACCOUNTING
Investors, shareholders, banks, creditors, govt. agencies, rating agencies.

PRIMARY USERS

FREEDOM OF CHOICE OF ACCOUNTING MEASURES BEHAVIOURAL IMPLICATIONS IN SELECTING ACCOUNTING

No constraints other Constrained by than requiring the Generally Accepted benefits of improved Accounting Principles. management decisions to exceed information costs. Choice should consider how measurements & reports will influence Behavioural considerations are secondary .

MANAGEMENT ACC. ACCOUNTING

FINANCIAL

TIME FOCUS OF REPORTS

Future orientation

Past orientation

TIME SPAN OF REPORTS

Flexible; varying from Less flexible; usually hourly to 10 to 15 years one year or one quarter

TYPES OF REPORTS

Detailed reports; includes details about the products, departments, territories etc. Field is less sharply defined. Heavier use of economics,decision sciences, and behavioural sciences.

Summary reports; P&L Account, balance sheet- primarily report on the entity as a whole Field is more sharply defined. Lighter use of related disciplines.

INFLUENCE OF OTHER FUNCTIONAL AREAS

Cost A/C vs Mgt A/C

BASIS COST ACCOUNTING MANAGEMENT ACCOUNTING
Presentation of accounting information such a way as to assist mgt in policy formation & dec.-making Provide information for managerial decision making Wide- includes fin. Accounting , cost acc, budgeting Quantitative as well as qualitative

MEANING

Ascertain cost product, process, division deptt or service, so as to control and reduce the cost Cost ascertainment, cost control, performance evaluation, decision making Limited- doesnt include financial accounting, tax planning etc. Quantitative data only

OBJECTIVE

SCOPE

DATA

BASIS

CA

MA

DEVELOPMENT

Developed during industrial revolution when fin accounting info wasnt sufficient Cost ascertainment, cost control, cost reduction

Dev as an extension to cost accounting to help mgt in effective decmaking On planning and controlling

EMPHASIS

TOOLS AND TECHNIQUES

Like standard costing, marginal costing, budgetary control etc.

Compulsory for the industries specified by the govt in its order normative

Ratio analysis, FFA, CFA, Comparative analysis etc.

optional

LEGAL COMPULSION

APPROACH

practical

Advantages of MA
Increses efficiency in bus. activities Ensures proper regulation of bus activities by establishing efficient system of planning and budgeting Optimum utilistaion of resources Maximisation of return on capital Ensures effective control by comparing actual with the standard

Good public relation as quality service provided to customers Provides means to motivate employees Helps in taking remedial actions Management audit helps find out efficiency and effectiveness of companys business

LIMITATIONS OF MA
Validity of the decisions depends on the reliability of the historical data as obtained from the financial statements. Mgt accountant needs to have substantial knwledge about a number of areas like accounting, costing, economics, taxation, stats, maths etc.to virtually find such a combination is pretty difficult

Elements of intuition in mgrl decision havent been completely eliminated Installation of maanagement accouting requires heavy investments in terms of money and manpower MA still in development stage; lacks sharpness and speed required of an efficient system Objectivity not followed, corrupted by personal bias of the manager

Role of Management accountant :

Helps management in effective decision making. Precisely, in the cycle of planning and control decisions of an organisation. Develop plans; short , medium & long term. Helps in performance assessment (comparison of actual and estimated budgets)

THANK YOU