MANAGEMENT ACCOUNTING - An Introduction - PowerPoint Presentation

1. MANAGEMENT ACCOUNTING-An IntroductionDr.S.BELLARMIN DIANAASSISTANT PROFESSORPG & RESEARCH DEPARTMENT OF MANAGEMENT STUDIESBON SECOURS COLLEGE FOR WOMEN, THANJAVUR.

2. INRODUCTIONAccounting serves the purpose of providing financial information relating a business. Such information is provided to people who have an interest in the organizationOn the basis of type of accounting information and the purpose for which such information is used, accounting may be divided into three categories:

3. Financial AccountingFinancial accounting is mainly concerned with recording business transactions in the books of accounts for the purpose of presenting final accounts, i.e., Profit & Loss account - showing the net profit or loss during the period Balance Sheet - showing the financial position of the firm at a point of time.The objective of financial accounting is to provide information to external parties such as shareholders, creditors, employees, potential investors, government agencies, etc.

4. Cost AccountingCost accounting is a branch of accounting which specializes in providing information about the detailed cost of products or services being supplied by the undertaking.The information supplied by cost accounting acts as a tool of management for making optimum use of scarce resources and ultimately-add to the profitability of business. Cost accounting information is mainly for internal use i.e. management. It is not to be provided to external parties such as shareholders, creditors, potential investors, etc.

5. Management AccountingIt is concerned with all such accounting information that is useful to management. In simple words, the term management accounting is applied to the provision of accounting information for management activities such as planning, controlling and decision-making, etc. It serves as a decision support system to all levels of management.

6. DEFINITION According to National Association of Accountants (USA), management accounting is "the process of identification, measurement, accumulation, analysis, preparation and communication of financial information used by management to plan. evaluate and control within the organization and to assure appropriate use and accountability for its resources.

7. DEFINITION In the words of Robert Anthony, "Management accounting is concerned with accounting information that is useful to management.“The Institute of Cost and Works Accountants of India (ICWAI) has defined management accounting as "a system of collection and presentation of relevant economic information relating to an enterprise for planning, controlling and decision making."

8. OBJECTIVESTo assist the management in promoting efficiencyTo prepare budgets covering all functions of a businessTo analyze monetary and non-monetary transactionsTo compare the actual performance with plan for identifying deviations and their causes

9. OBJECTIVESTo interpret financial statements to enable the management to formulate future policiesTo submit to the management at frequent intervals operating statements and short-term financial statements.To arrange for the systematic allocation of responsibilitiesTo help the management in making decisions and implementing them efficiently

10. CHARACTERISTICS The aim of management accounting is to assist management in decision makingManagement accounting derives basic accounting information from financial and cost accountingThe information provided by management accounting is used by management for internal use and its is not given to external partiesIts adoption by any firm is depends on its utility and desirability and there is no statutory obligationAs it is concerned with decision making it is related with future course of action There is no prescribed formats for presentation of information to management.The study of cause and effect relationship is possible in management accounting

11. SCOPE OF MANAGEMENT ACCOUNTINGFor an effective and successful management accounting, there should be a proper and well designed financial accounting systemThe techniques of cost control and techniques of profit planning and decision-making are used by the management accountingForecasting helps in the preparation of budgets and budgeting helps management accountant in exercising budgetary controlManagement accountant depends upon tax accounting and planning to minimize its tax liabilities and save more funds for the business

12. SCOPE OF MANAGEMENT ACCOUNTINGFor effective and timely decisions, there should be a system of prompt and intelligent reporting to managementManagement accounting is incomplete without effective cost control procedures like inventory control, labour control, overhead control, budgetary control, etcTools of analyzing and presenting 'statistical data like graphs, tables, charts, etc., are used in preparing reports for use by the management

13. SCOPE OF MANAGEMENT ACCOUNTINGManagement accountant heavily depends on internal financial controls like internal audit and internal check to plug loop holes in the financial system of the concernManagement accountant employs various techniques to analyze and interpret financial data to make it understandable and useable to the managementManagement accountant is expected to maintain and control office routines and procedures like filing, copying, communicating, electronic data processing and other allied services

14. FINANCIAL ACCOUNTING VS MANAGEMENT ACCOUNTINGAccounting information is mainly intended for external usersIt is based on double entry systemIt is obligatory under company law and tax lawIt shows the profit or loss of the business as a whole and does not show the cost and profit for individual products, process or departmentsAccounting information is mainly meant for internal usersIt is not based on double entry systemIt is optionalIt provides detail information about individual products, plants or departmentsFINANCIAL ACCOUNTINGMANAGEMENT ACCOUNTING

15. FINANCIAL ACCOUNTING VS MANAGEMENT ACCOUNTINGIt is concerned with recording transactions which have already taken placeFinancial reports are prepared usually on a year to year basisFinancial accounts are prepared according to accounting standards issued by ICAIIt prepares general purpose statements which are used by external usersFinancial statements are published for general public and are required to be audited by the Charted AccountantsIt provides information in terms of money onlyIt is future oriented and concentrates on what is likely to happen in future.Accounting reports are prepared frequently It is not bound by accounting standardsIt prepares special purpose reports which are used by top level managementAccounting statements are neither published for general public nor required to be audited by the Charted AccountantsIt may apply monetary and non-monetary units of measurementFINANCIAL ACCOUNTINGMANAGEMENT ACCOUNTING

16. COST ACCOUNTING VS MANAGEMENT ACCOUNTINGIt provides only cost informationThe main emphasis is on cost ascertainment and cost control to ensure maximum profitEvolution of cost accounting is mainly due to the limitation of financial accountingMaintenance of cost records has been Management accounting is purely made compulsory in selected industries as notified by the Govt. from time to timeIt provides cost as well as financial accounting informationThe main emphasis is on planning, controlling and decision making to maximize profitEvolution of management accounting is due to the limitations of cost accountingManagement accounting is purely voluntary and its use depends upon its utility to managementCOST ACCOUNTINGMANAGEMENT ACCOUNTING

17. COST ACCOUNTING VS MANAGEMENT ACCOUNTINGIt is based on data derived from financial accountsIn the organizational setup, cost accounting is placed at lower level in hierarchy than the management accountantCost accounting system can be installed without management accountingVarious techniques used by cost accounting include standard costing and variance analysis, marginal costing andcost volume profit analysis, budgetary control, uniform costing and inter-firm comparison, etc.It is based on data derived from cost accounting and financial accounting and other sourcesManagement accountant is generally placed at a higher level of hierarchy than the cost accountantManagement accounting can not be installed without a proper system of cost accountingManagement accounting also uses all these techniques used in cost accounting but in addition it also uses techniques like ratio analyses funds flow statement, statistical analysis and certain techniques from various branches of knowledgeCOST ACCOUNTINGMANAGEMENT ACCOUNTING

18. TOOLS & TECHNIQUESBudgetingStandard costing and variance analysisMarginal costing and cost volume profit analysisRatio analysisComparative financial statementsDifferential cost analysisFunds flow statementsCash flow statementResponsibility accountingAccounting for price level changesStatistical and graphical techniquesDiscounted cash flowRisk analysisLearning curveValue analysisWork study, etc

19. THANK YOU