2. MEANING OF MANAGEMENT
ACCOUNTING
"MANAGEMENT ACCOUNTING IS A PROFESSION THAT INVOLVES PARTNERING
IN MANAGEMENT DECISION MAKING, DEVISING PLANNING AND
PERFORMANCE MANAGEMENT SYSTEMS, AND PROVIDING EXPERTISE IN
FINANCIAL REPORTING AND CONTROL TO ASSIST MANAGEMENT IN THE
FORMULATION AND IMPLEMENTATION OF AN ORGANIZATION'S STRATEGY".
4. 1. PRESENTATION OF DATA
BOTH PROFIT AND LOSS ACCOUNT AND BALANCE SHEET ARE NOT USEFUL FOR TAKING A
DECISION. HENCE, THE CONTENTS OF PROFIT AND LOSS ACCOUNT AND BALANCE SHEET
ARE MODIFIED AND REARRANGED IN SUCH A MANNER THAT HELPS THE MANAGEMENT
FOR TAKING DECISION THROUGH VARIOUS TECHNIQUES.
2. ANALYSIS AND INTERPRETATION OF DATA
THE FINANCIAL ACCOUNTING DATA IS REARRANGED FOR PROPER ANALYSIS.
COMPARATIVE AND COMMON SIZE STATEMENTS ARE PREPARED FOR THE MEANINGFUL
INTERPRETATION OF DATA. RATIOS ARE CALCULATED AND LIKELY TRENDS ARE
PROJECTED.
3. HELP IN ORGANIZING
ORGANIZING REFERS TO ALLOCATION OF COMPANY RESOURCES TO VARIOUS
DEPARTMENTS AND ASSIGNMENT OF DUTIES TO EMPLOYEES AT VARIOUS LEVELS OF
MANAGEMENT. THE MODIFIED DATA AND ANALYSIS AND INTERPRETATION ARE HELPING
THE MANAGEMENT FOR ORGANIZING.
5. 4. MEANS OF COMMUNICATION
THE ANALYSIS AND INTERPRETATION OF MODIFIED DATA IS CONVEYED TO THE
EMPLOYEES OF AN ORGANIZATION AS A WHOLE. MORE MEANINGFUL INFORMATION IS
SUPPLIED TO ALL LEVELS OF MANAGEMENT EXECUTIVES. IN THIS WAY, REARRANGED
AND MODIFIED DATA ARE USED AS MEANS OF COMMUNICATION UNDER MANAGEMENT
ACCOUNTING SYSTEM.
5. PLANNING
THE FUND FLOW STATEMENT, CASH FLOW STATEMENT, BUDGETING, STANDARD COSTING,
CAPITAL BUDGETING AND MARGINAL COSTING ARE USED FOR PLANNING PURPOSE.
THESE ARE IMPORTANT TOOLS OF MANAGEMENT ACCOUNTING.
6. DECISION-MAKING
MODIFIED DATA, ANALYZED AND INTERPRETED INFORMATION ARE HIGHLY USEFUL TO
MANAGEMENT FOR TAKING QUALITY DECISION AND POLICY FORMULATION.
6. 7. USING OF QUALITATIVE INFORMATION
QUALITATIVE INFORMATION MEANS DATA CANNOT BE MEASURED IN TERMS OF RUPEES,
UNITS, KGS, TONS, METERS AND THE LIKE. EMPLOYEES EFFICIENCY, POLICY OF
MANAGEMENT, EMPLOYER AND EMPLOYEE RELATIONSHIP ETC. ARE THE EXAMPLES FOR
QUALITATIVE INFORMATION. THESE TYPES OF INFORMATION ARE ALSO USED IN THE
MANAGEMENT ACCOUNTING SYSTEM.
8. COORDINATION
THE PREPARATION OF BUDGETS ON FUNCTIONAL BASIS IS THE FIXATION OF TARGETS
FOR EACH DEPARTMENT SEPARATELY. THE OBJECTIVES OF ORGANIZATION IS ACHIEVED
THROUGH ATTAINMENT OF TARGETS OF ALL THE DEPARTMENTS. THE PREPARATION OF
PERIODICAL PERFORMANCE REPORT OF ALL THE DEPARTMENTS UNDER MANAGEMENT
ACCOUNTING SYSTEM BRINGS COORDINATION AMONG ALL THE DEPARTMENTS.
8. 1. HELPFUL IN DECISION MAKING
IT IS AN IMPORTANT FEATURE OF MANAGEMENT ACCOUNTING. IN FACT, IT HELPS THE
MANAGEMENT OF ORGANIZATION BY PROVIDING RELEVANT AND ACCURATE
INFORMATION FROM VARIOUS SOURCES (LIKE FINANCIAL AND COST ACCOUNTING) IN
ORDER TO MAKE SOUND DECISIONS TO REMOVE BUSINESS PROBLEMS.
2. PROVIDES DATA, NOT THE DECISION
IT ONLY PROVIDES REQUIRED DATA AND INFORMATION TO THE MANAGEMENT, NOT THE
DECISION. IT IS UP TO THE MANAGEMENT THAT HOW THEY UTILIZE THE AVAILABLE DATA
AND INFORMATION TO RESOLVING THE BUSINESS PROBLEMS THROUGH TAKING
EFFECTIVE DECISIONS.
3. SELECTIVE IN NATURE
IT IS ALSO A POTENT CHARACTERISTIC OF THIS ACCOUNTING SYSTEM. HERE SELECTIVE
MEANS, IN MANAGEMENT ACCOUNTING A MANAGEMENT ACCOUNTANT IS ONLY COLLECT
THOSE DATA AND INFORMATION FROM A VARIETY OF ALTERNATIVES WHICH MAY CREATE
MORE BENEFITS AND EASINESS TO THE MANAGEMENT IN DECISION MAKING. HENCE, IT IS
SELECTIVE IN NATURE.
9. 4. ASSIST IN ACHIEVING OBJECTIVES
MANAGEMENT ACCOUNTING IS ALWAYS ASSIST ORGANIZATION IN ACHIEVING ITS
PREDETERMINED GOALS. BECAUSE IT PROVIDES DETAILED INFORMATION IN REGARDING
THE WEAKNESS AND THE STRENGTH OF ORGANIZATION IN THE FORM OF REPORT, ON
THE BASIS OF THAT ANY ORGANIZATION CAN ELIMINATE RECOGNIZED WEAKNESS
(BUSINESS PROBLEMS) AND MAY ACHIEVE ITS GOAL EASILY.
5. RELATED TO FUTURE
MANAGEMENT ACCOUNTING IS AN ACCOUNTING SYSTEM WHICH IS DIRECTLY RELATED
TO FUTURE COURSE OF EVENTS. IT MEANS BY PREPARING THIS ACCOUNT ANY
ORGANIZATION CAN FORECAST ITS FUTURE ON THE BASIS AVAILABLE INFORMATION IN
RELATING THE PAST EVENTS (HISTORICAL DATA).
6. USE OF SPECIAL TECHNIQUES
MANAGEMENT ACCOUNTING USES SPECIAL TOOLS OR TECHNIQUES (LIKE STANDARD
COSTING, BUDGETARY CONTROL, CONTROL ACCOUNTING, MARGINAL COSTING ETC) FOR
COMPOSING THE ACCOUNTING INFORMATION AND DATA MORE ACCURATE AND
RELEVANT. SO THAT MANAGEMENT CAN EASILY MAKE THEIR DECISIONS. THE TYPE OF
TECHNIQUE TO BE APPLIED WILL BE DETERMINED ACCORDING TO THE SITUATION AND
11. 1. FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING FORMS THE BASIS FOR ANALYSIS AND INTERPRETATION FOR
FURNISHING MEANINGFUL DATA TO THE MANAGEMENT. THE CONTROL ASPECT IS BASED
ON FINANCIAL DATA AND PERFORMANCE EVALUATION, ON RECORDED FACTS AND
FIGURES. SO, MANAGEMENT ACCOUNTING IS CLOSELY RELATED TO FINANCIAL
ACCOUNTING IN MANY RESPECTS.
2. COST ACCOUNTING
COST ACCOUNTING IS THE PROCESS AND TECHNIQUES OF ASCERTAINING COST.
PLANNING, DECISION MAKING AND CONTROL ARE THE BASIC MANAGERIAL FUNCTIONS.
THE COST ACCOUNTING SYSTEM PROVIDES THE NECESSARY TOOL FOR CARRYING OUT
SUCH FUNCTIONS EFFICIENTLY. THE TOOLS INCLUDES STANDARD COSTING, INVENTORY
MANAGEMENT, VARIABLE COSTING ETC.
3. INVENTORY CONTROL
INVENTORY IS NECESSARY TO CONTROL FROM THE TIME IT IS ACQUIRE TILL ITS FINAL
DISPOSAL AS IT INVOLVES LARGE SUM. FOR CONTROLLING INVENTORY, MANAGEMENT
SHOULD DETERMINE DIFFERENT LEVEL OF STOCK. THE INVENTORY CONTROL
TECHNIQUE WILL BE HELPFUL FOR TAKING MANAGERIAL DECISIONS.
12. 4. BUDGETING AND FORECASTING
BUDGETING MEANS EXPRESSING THE PLANS, POLICIES AND GOALS OF THE FIRM FOR A
DEFINITE PERIOD IN FUTURE. FORECASTING ON THE OTHER HAND, IS A PREDICTION OF
WHAT WILL HAPPEN AS A RESULT OF A GIVEN SET OF CIRCUMSTANCES. FORECASTING IS
A JUDGEMENT WHEREAS THE BUDGETING IS AN ORGANIZATIONAL OBJECT. THESE ARE
USEFUL FOR MANAGEMENT ACCOUNTING IN PLANNING.
5. STATISTICAL METHOD
STATISTICAL TOOLS NOT ONLY MAKE THE INFORMATION MORE IMPRESSIVE,
COMPREHENSIVE AND INTELLIGIBLE BUT ALSO ARE HIGHLY USEFUL FOR PLANNING AND
FORECASTING.
6. INTERPRETATION OF DATA
ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS ARE IMPORTANT PART OF
MANAGEMENT ACCOUNTING. AFTER ANALYZING THE FINANCIAL STATEMENTS, THE
INTERPRETATION IS MADE AND THE REPORTS DRAWN FROM THIS ANALYSIS ARE
PRESENTED TO THE MANAGEMENT.
14. Meaning
Cost Accounting is an accounting system, through
which an organization keeps the track of various
costs incurred in the business in production
activities.
Financial Accounting is an accounting system that captures the
records of financial information about the business to show the
correct financial position of the company at a particular date.
Information
type
Records the information related to material, labor
and overhead, which are used in the production
process.
Records the information which are in monetary terms.
Which type
of cost is
used for
recording?
Both historical and pre-determined cost Only historical cost.
Users
Information provided by the cost accounting is used
only by the internal management of the organization
like employees, directors, managers, supervisors etc.
Users of information provided by the financial accounting are
internal and external parties like creditors, shareholders,
customers etc.
Valuation of
Stock
At cost Cost or Net Realizable Value, whichever is less.
Mandatory No, except for manufacturing firms it is mandatory. Yes for all firms.
Time of
Reporting
Details provided by cost accounting are frequently
prepared and reported to the management.
Financial statements are reported at the end of the accounting
period, which is normally 1 year.
16. Meaning
Financial Accounting is an accounting system
that focuses on the preparation of financial
statement of an organization to provide the
financial information to the interested parties.
The accounting system which provides relevant
information to the managers to make policies, plans
and strategies for running the business effectively is
known as Management Accounting.
Is is
compulsory
?
Yes No
Information Monetary information only. Monetary and non-monetary information
Objective To provide financial information to outsiders.
To assist the management in planning and decision
making process by providing detailed information on
various matters.
Format Specified Not specified
Time Frame
Financial Statements are prepared at the end
of the accounting period which is usually one
The reports are prepared as per the need and
requirements of the organization.
