Management Accounting
Management Accounting is the presentation of accounting
information in such a way as to assist management in the creation of policy and
the day-to-day operation of an undertaking. Thus, it relates to the use of
accounting data collected with the help of financial accounting and cost
accounting for the purpose of policy formulation, planning, control and
decision-making by the management.
Management accounting links management with accounting as
any accounting information required for taking managerial decisions is the
subject matter of management accounting.
Some leading definitions of Management Accounting are given
below:
“Management Accounting is concerned with accounting
information that is useful to management.” —R.N. Anthony
“Management Accounting is the term used to describe
accounting methods, systems and techniques which coupled with special knowledge
and ability, assists management in its task of maximising profits or minimising
losses. Management Accountancy is the blending together into a coherent whole,
financial accounting, cost accountancy and all aspects of financial
management.” —Batty
“Management accounting is a system of collection and
presentation of relevant economic information relating to an enterprise for
planning, controlling and decision-making.” —ICWA of India
“Management accounting is the provision of information
required by management for such purposes as formulation of policies, planning
and controlling the activities of the enterprise, decision-making on the
alternative courses of action, disclosure to those external to the entity
(shareholders and others), disclosure to employees and safeguarding of assets.”
—CIMA London
Management Accounting is “the application of appropriate
techniques and concepts in processing historical and projected economic data of
an entity to assist management in establishing plans for reasonable economic
objectives and in the making of rational decisions with a view towards these
objectives”. —American Accounting Association
From the above it is clear that management accounting uses
all techniques of financial accounting, cost accounting and statistics to
collect and process data for making it available to management so that it can
take decisions in a scientific manner.
Nature of Management Accounting:
(i) Technique of Selective Nature:
Management Accounting is a technique of selective nature. It
takes into consideration only that data from the income statement and position
state merit which is relevant and useful to the management. Only that information
is communicated to the management which is helpful for taking decisions on
various aspects of the business.
(ii) Provides Data and not the Decisions:
The management accountant is not taking any decision by
provides data which is helpful to the management in decision-making. It can
inform but cannot prescribe. It is just like a map which guides the traveller
where he will be if he travels in one direction or another. Much depends on the
efficiency and wisdom of the management for utilizing the information provided
by the management accountant.
(iii) Concerned with the Future:
Management accounting unlike the financial accounting deals
with the forecast with the future. It helps in planning the future because
decisions are always taken for the future course of action.
(iv) Analysis of Different Variables:
Management accounting helps in analysing the reasons as to
why the profit or loss is more or less as compared to the past period.
Moreover, it tries to analyse the effect of different variables on the profits
and profitability of the concern.
(v) No Set Formats for Information:
Management accounting will not provide information in a
prescribed proforma like that of financial accounting. It provides the
information to the management in the form which may be more useful to the
management in taking various decisions on the various aspects of the business.
Scope of Management Accounting:
The scope of management accounting is very wide and
broad-based. It includes all information which is provided to the management
for financial analysis and interpretation of the business operations.
(i) Financial Accounting:
Financial accounting though provides historical information
but is very useful for future planning and financial forecasting. Designing of
a proper financial accounting system is a must for obtaining full control and
co-ordination of operations of the business.
(ii) Cost Accounting:
It provides various techniques of costing like marginal
costing, standard costing, differential and opportunity cost analysis, etc.,
which play a useful role n t operation and control of the business
undertakings.
(iii) Budgeting and Forecasting:
Forecasting on the various aspects of the business is
necessary for budgeting. Budgetary control controls the activities of the
business through the operations of budget by comparing the actual with the
budgeted figures, finding out the deviations, analysing the deviations in order
to pinpoint the responsibility and take remedial action so that adverse things
may not happen in future.
Both techniques are necessary for the management accountant.
(iv) Cost Control Procedures:
These procedures are an integral part of the management
accounting process and includes inventory control, cost control, labour
control, budgetary control and variance analysis, etc.
(v) Reporting:
The management accountant is required to submit reports to
the management on the various aspects of the undertaking. While reporting, he
may use statistical tools for the presentation of information as graphs, charts,
pictorial presentation, index numbers and other devices in order to make the
information more impressive and intelligent.
(vi) Methods and Procedures:
It includes in its study all those methods and procedures
which help the concern to use its resources in the most efficient and
economical manner. It undertakes special cost studies and estimations and
reports on cost volume profit relationship under changing circumstances.
(vii) Tax Accounting:
It is an integral part of management accounting and includes
preparation of income statement, determination of taxable income and filing up
the return of income etc.
(viii) Internal Financial Control:
Management accounting includes the internal control methods
like internal audit, efficient office management, etc.
(ix) Interpretation:
Management accounting is closely related to the
interpretation of financial data to the management and advising them on
decision-making.
(x) Office Services:
The management accountant may be required to maintain and
control office services in some organizations. This function includes data
processing, reporting on best use of mechanical and electronic devices,
communication, etc.
(xi) Evaluating the Performance of the Management:
Management accounting provides methods and techniques for
evaluating the performance of the management. It evaluates the performance of
the management in the light of the objectives of the organisation. Thus, it
helps in the implementation of the principle of management by exception.
The difference between management and cost accounting are as follows:
| S.No. | Cost Accounting | Management Accounting |
|---|
| 1 | The main objective of cost accounting is to assist the management in cost control and decision-making. | The primary objective of management accounting is to provide necessary information to the management in the process of its planning, controlling, and performance evaluation, and decision-making. |
| 2 | Cost accounting system uses quantitative cost data that can be measured in monitory terms. | Management accounting uses both quantitative and qualitative data. It also uses those data that cannot be measured in terms of money. |
| 3 | Determination of cost and cost control are the primary roles of cost accounting. | Efficient and effective performance of a concern is the primary role of management accounting. |
| 4 | Success of cost accounting does not depend upon management accounting system. | Success of management accounting depends on sound financial accounting system and cost accounting systems of a concern. |
| 5 | Cost-related data as obtained from financial accounting is the base of cost accounting. | Management accounting is based on the data as received from financial accounting and cost accounting. |
| 6 | Provides future cost-related decisions based on the historical cost information. | Provides historical and predictive information for future decision-making. |
| 7 | Cost accounting reports are useful to the management as well as the shareholders and creditors of a concern. | Management accounting prepares reports exclusively meant for the management. |
| 8 | Only cost accounting principles are used in it. | Principals of cost accounting and financial accounting are used in management accounting. |
| 9 | Statutory audit of cost accounting reports are necessary in some cases, especially big business houses. | No statutory requirement of audit for reports. |
| 10 | Cost accounting is restricted to cost-related data. | Management accounting uses financial accounting data as well as cost accounting data. |
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