Introduction to Management Accounting

Prof.Sucheta.Kanchi

Introduction
Mgt is involved in no. of decisions to maximize the wealth of its owners. Thus, decisions should ensure least cost and maximization of profit. Decision making is nothing but selecting best alternative out of all available alternatives. Best Alternative: which gives best result in least costs and maximum profit.

Contd
Thus, decision making is an important function of the management. There are many factors which influence the decision making process They are qualitative and quantitative factors Quantitative factors include material cost, labour cost, etc

Contd
Thus, the aim of management accounting is to provide reliable and relevant information to management in order to facilitate the decision making process

Definition of Management Accounting

Management Accounting includes the methods and concepts necessary for effective planning, for choosing among alternative business actions and for control trough the evaluation and interpretation of performances. Management Accounting is concerned with accounting information in such a way as to help the management

Need for Management Accounting

Management needs relevant info. for taking various decision. Increasing complexity of managerial decisions. Increase in size and problems of the corporate entities. Information to different levels of management.

Objective or Functions of Mgt.Accounting

Provides Relevant Data
To internal parties. To external parties.

Analysis and interpretation

Financial statement lacks in providing information about: Profitability Solvency liquidity

Contd
Facilitates overall control
It includes the techniques like budgetary control and standard costing Where the actual result is compare with the standard establish an if there is any deviation, corrective action is taken.

Scope of Mgt. Accounting

Financial Accounting :
Annual report provides voluminous data Analysis and interpretation is necessary to measure the performance. Mainly useful to the external parties

Cost Accounting :
Cost accounting provides voluminous data Includes techniques like marginal costing, standard costing and budgetary control for cost controlling.

Contd
Tools and techniques for analysis
Ratio analysis Fund flow Comparative statement

Statistical and quantitative techniques

Sampling technique Regression Analysis Probability Linear programming

Need for Mgt. Accounting

Decision making Forecasting

Controlling

Planning

Coordinating

Directing

Decision Making Collection of info from diff. sources Analyses and interpretation of info. Supply of relevant info. to the Mgt Facilitates decision making

Management Accounting v/s Financial Accounting

Point of Distinction Subject Matter Nature Dispatch Type of data used Compulsion Accuracy Management Accounting Concerns with the various departments, sub div. etc Concerns not only with past nut also with the future plans Quick dispatch of info is required Statistical, descriptive, subjective, etc.. Optional Approximations are used Financial Accounting Concerns with the business as a whole Mainly concerns with the historical information Results are disclose at the end of the year Historic quantitative, monetary and objective Mandatory by law Great importance to figures worked out accurately

Management Accounting v/s Cost Accounting

Point of Distinction Primary Objective Cost Accounting Aims at ascertaining then cost of goods and services Past data mainly used Management Accounting Aims at ascertaining presentation of the cost data Past as well as future time frame

Time factor Governing principles, rules Utility of reports Statutory Verification

Reports are prepared according No such rigidity to rules Mainly to internal parties Cost audit Internal as well as external parties Not subject to any statutory audit

Limitations