ABSTRACT

Accounting as a scientific discipline, identifies, records and communicates information that is

relevant, reliable and comparable to decisions by the user. Management accounting differs from
financial accounting mainly regarding users. Managerial accounting information needed for
internal users, while financial accounting information users external addresses. The objectives of
management accounting related to meeting the objectives of the Organization. Accounting
Management helps an organization to make decisions, control, planning and reporting of more
qualitative information. Competition, increased services and information technology advances
are key factors that have contributed to greater practice of management accounting in the
enterprise. This means active participation of management accountants in key processes of the
enterprise. Today, their role is very large and the application of ethical standards is mandatory.
 CONTENT

SL Topic Page
NO. No.

1 Introduction 1

2 Classification of Accounting 2-3

3 Objectives 3-6

4 Scope of management accounting 6-7

5 Rule & important of management accounting 8-9

6 Function of management 9-10

7 Tools and techniques used in management accounting 10-12

8 Limitations or disadvantages of management 12-13

accounting

9 Conclusion 14

10 References 15
 Introduction
Management accounting can be viewed as Management-oriented Accounting. Basically it is the
study of managerial aspect of financial accounting, "accounting in relation to management
function". It shows how the accounting function can be re-oriented so as to fit it within the
framework of management activity. The primary task of management accounting is, therefore, to
redesign the entire accounting system so that it may serve the operational needs of the firm. If
furnishes definite accounting information, past, present or future, which may be used as a basis
for management action. The financial data are so devised and systematically development that
they become a unique tool for management decision.

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Definition
"Management accounting is the presentation of accounting information in such a way as to assist
management in the creation of policy and in the day-to-day operations of an undertaking-.
l.C.MA -the definition recently incorporated into the terminology.

Meaning
The term Management Accounting consists of two words "'Management" and "Accounting". It is
the study of managerial aspects of accounting. It is a tool in the hands of management to exercise
decision making. The emphasis of management accounting is to redesign accounting in a manner
which is helpful to the management in framing the policies and control of their execution.

Classification of Accounting
There are three different classes of accounting which are Financial Accounting, Cost
Accounting, and Management Accounting. All three have their own characteristics and use.
Further, they have different results as well as recording and maintenance.

Let us understand elaborately the classification of accounting.

 Financial Account
We can define financial accounting as a process of recording, summarizing, and reporting
various transactions that occur over a period of time during the course of business. We gather
and convert all the daily transactions into financial statements, balance sheet, income statements,
and cash flow statements.

In the preparation of the above, financial accounting uses a bunch of accounting principles.
These contain different rules and assumption set out for the preparation of financial statements.
There are various different rules and regulations that financial accounting uses for the
preparation and presentation of financial accounting.

In India, alt financial accounts are prepared in accordance with Generally Accepted Accounting
Principal (GAAP). In the case of International public companies, international financial reporting
standard is applicable together with GAAP.

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  Cost Accounting
Cost accounting is a process of recording, summarizing, analyzing, and allocating the cost over
the process of manufacturing a product or providing services.

It helps management to determine the cost involved in manufacturing a product or services by

use of different cost accounting method.

 Management Accounting
Management Accounting or Managerial Accounting helps managers to make and implement
business policies for better results. They use financial accounting information for this purpose.
Management accounting is a different analysis tool for analyzing accounting information and to
draw out best for the organization. The objective of Management accounting is to remrd, analyse
and present financial data to the Management in such a way that it becomes useful and helpful in
planning and running business operations systematically and effectively.

Objectives
Main objective of management accounting is to help the management in performing its functions
efficiently. The major functions of management are planning, organizing , directing and
controlling . Management accounting helps the management in performing these functions
effectively.

(1) Presentation of Data:

Traditional Profit and Loss Account and the Balance Sheet are not analytical for
decision making. Management accounting modifies and rearranges data as per the requirements
for decision making through various techniques.

(2) Aid of Planning and Forecasting:

Management accounting is helpful to the management in the process of planning
through the techniques of budgetary control and standard costing. Forecasting is extensively used
in preparing budgets and setting standards.

(3) Help in Organising :

Organising is concerned with establishment of relationships among different
individuals in the firm. It includes delegation of authority and fixing responsibility. Management
Accounting aims at aiding the Management in organising through establishment of cost centres ,
profit centres, responsibility centres, Budget preparation etc. AH these activities are helpful in

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setting up an effective organisational frame work.

(4)Decision Making:
Management accounting provides comparative data for analysis and
interpretation for effective decision making and policy formulation.

(5)Reporting to Management of Different levels:

One of the Major objectives of Management accounting is to keep the
Management informed about the performance, adherence to plans and progress of various
sections of the organisation.

Top Management needs feed-back about implementation of its plans

policies and programmes. Middle level Management and even junior executives need data for
day to day operating decisions. Periodical and frequent reports are prepared and sent in time by
Management Accountant to cater to the needs of all the levels of Management.

(6)Communication of Management Policies:

Management accounting conveys the policies of the management downward
to the personal effectively for proper implementation. Standard costing and budgetary control are
integrat part of management accounting. These techniques lay-down targets, compare actuals
will standards and budgets to evaluate the performance and control the deviations.

(7)lncorporation of Non-financial Information:

Management accounting considers both financial and non-financial
information for developing alternative courses of action which leads to effective and accurate
decisions.

(8)Coordination:
The targets of different departments are communicated to them and their
performance is reported to the management from time to time. This continual reporting helps the
management in coordinating various activities to improve the overall performance.

(9)Motivating Employees:
Budgets, standards and other programmers are to be implemented in
practice by the employees. A major objective of Management accounting is to determine

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the targets in the form of budgets, standards and programmer in such a way that the employees
feel motivated to achieve them. This is usually accomplished by making the targets practicable
and offering suitable monetary and NonMonetary incentives to achieve them.

Difference between management accounting & financial accounting

Basis Management Accounting Financial accounting

1.Objective The main objective is to provide The objective is to recorded

information to management for various transactions and to know
formulation policies & plans. the financial position and to find
out profit or loss at the end of the
financial year.

2.Subject It deals separately with different units, It is concerned with assessing the
matter department and cost centres. results of the business as a whole.

3.Nature It deals with projection of data for the It mainly concerned with historical
future. data.

4.Period It supplies information from time to time Financial accounts are prepared
during the whole year. for a particular period.

5.Dependence It depends on both financial accounting It does not depends on

& cost accounting. management accounting.

6.Audit Under it accounts are not to be audited Under it accounts are to be audited

7.Description It records both monetary and non- It records only monetary

monetary transaction. transaction.

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 Difference between management accounting & cost accounting
Basis Management Accounting Cost Accounting

1. Object The purpose of management accounting is The object of cost accounting is to

to provide information to the management. record the cost of a product.

2. Scope The scope is very wide The scope is limited

3. Nature Management accounting uses estimated Cost accounting uses both past and
figures for future. present figures.

4. Installation It can't be installed without cost It can be installed without

accounting & financial accounting. management accounting.

5. Data used It uses both quantitative and qualitative It uses quantitative information
information only. only.

6. Principle No specifies rules and procedures are Certain principles and procedure
followed. are followed.

7. Development It has developed only in the fast forty year. The developed of cost accounting is
related to industrial revolution.

Scope of management accounting

The main function of management accounting is to provide information about
policy making planning & controlling for this purpose it collects necessary information from
accounting & non-accounting sources. Therefore the scope of management accounting is quite
wide.

Followings are included in its scope-

 Financial accounting :-
Management accounting collects data from financial record and supply these data to the
management. After rearranging the same for ratio analysis relevant information are taken from
profit and loss account and balance sheet which are financial accounting.

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 Cost accounting :-
Information regarding unit cost of product and services and the ratios of different elements
to total cost are extracted from cost accounts. This is helpful in cost control. Therefore cost
accounting is also covered with in the scope of management accounting.

 Budget & Control:-

Different budget are prepared under budgetary control. Actual performance can compared
with the budgeted performance and unfavourable can be avoided in future.

 Inventory:-
Under this method level of inventory and cost are controlled to different techniques.

 Stastical methods:-
Stastical techniques like graphs, chats, index number etc. Helps in understanding the data
easily and also helps in planning and forecasting.

 Revaluation accounting:-
It helps to determine the profit and loss and financial position of the business on the basis of
replacement value. So, that the capital of the business is represented in its real value.

 Methods and procedures:-

In business necessary changes are made to simplified procedures and methods and reduce
there cost. Management accounting provides necessary information to the management in this
regard.

 Internal audits:-
It covered the development of internal audit system for internal control.

 Interim reporting:-
It includes the preparation of interim reporting and income statement, cash flow statement,
funds flow statement etc.

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Rule & important of management accounting
Management accounting has become an integral part of management. Management accountant
guides and advices management at every step. This information is provided is proper form and at
right time . The following are the advantages of important of management accounting:-

(a) Increases efficiency :-

Management accounting increases the efficiency of business concern. The targets of different
department are set in advance and after that the arrangement is made to compare them with
actual results. In this situation the increases in efficiency is possible in business.

(b) Proper planning:-

Management is able to plan various operations with the help of accounting information. The
technique of budgeting is helpful in forecasting various activities. Budgets are prepared for the
whole organization. The activities of the concern are planned in a systematic manner.

(c) Management of performance:-

Budgeting control and standard costing are such techniques which enable the evaluation of work
performance. In standard costing standards are determined firstly and standard costing is
compared with actual cost. It enables the management to find out deviations between standard
cost and actual cost. The performance will be good if actual cost does not exceed standard cost
budgeting control system also helps in measuring efficiency of all employees.

(d) Maximising profit:-

The steps of controlling cost are able to reduce cost of production. The profits of the enterprise
are maximised with the help of management accounting system. Every unit of organization tries
to contribute its maximum which enables the best use of all factors of productions. The return on
investment also goes up.

(e) Improve series to customer:-

The cost control devices used in management accounting enables. The reduction of prices the
quality of products becomes good because quality standard are predetermined. The customers are
supplied good quality products at reasonable price.

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(f) Effective management control:-
The tools and techniques of management accounting are helpful to the management in planning,
co-ordinating and controlling activities of a concern.

Function of management
Management accounting is the part of accounting. It is developed out of the need making more
and more use of accounting taking managerial decision. The main function of management
accounting are:-

(1) Provides data:-

Management accounting prepared plan for management and provides data to take right decision.
These data relate to past progress of the business.

(2)Modification of data:-
Management account helps modifying accounting data. The information is modified in such a
way that it becomes useful for the management If sales data is required it can be classified
according to product, area, season wise, type of customer, time taken or getting payment etc. The
modification of data in similar groups makes the data more understandable and useful.

(3) Use of qualitative information

Management accounting not only provides quantitative but also qualitative information. Which
help in decision making such information include information receipt by special Stastical
investigation. Information from engineering account behavior effects of different management
accounting technics etc.

(4) To help in planning:-

Management plans for different activities to achieve the business goal under this plans, policies,
determine and budget are prepare. Management accounting provide necessary information about
the cost and benefit of different ultra natives sates budge􀃽 cash budget and expenditure budget
are based on forecast. These forecast are made on the basis of financial accounting.

(5) To help in motivation:-

An effective implementation of plan, it is necessary to motivate the people. Under the
management accounting management get different accounting information from time to time

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 On the basis of these information people are motivated.

(6) Communication and coordination:-

Management accounting communicated information from one department to another and lower
level to top feve-1 through reports. In the management accounting various activities and
department business are co-ordinated. Management accounting remove contradiction and
established.

(7) To help in control

Management accounting very useful in controlling performance all accounting efforts are
directed towards control of enterprise. The standard of various departments and individual are set
up. The actual performance are recorded and deviation are calculated. It enables the management
to assess the performance of everyone in the organisation.

(8) It helps in decision making:-

ln Management different decisions are made at different levels. Management accounting
provides information to arrive at right decision. These information are collected from internal
and external sources. Manager select different ultra natives for decision making these decisions
may be regarding seasonal or temporary stoppage of production, replacement decision,
expansion or diversification of work and correct decision is taken.

Tools and techniques used in management accounting

1. Financial Planning
The main objective of any business organization is maximization of profits. This objective is
achieved by making proper or sound financial planning. Hence, financial planning is considered
as best tool for achieving business objectives.

2. Financial Statement Analysis

Profit and Loss account and Balance Sheet are important financial statements. These statements
are analyzed for different period. This type of analysis helps the management to know the rate of
growth of business concern. This analysis is done through comparative financial statements,
common size statements and ratio analysis.

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3. Decision-making Accounting
A business problem can be solved by choosing any one of the best and most profitable
alternative. To select such alternative, the relevant costs are compared. Thus, accounting
information are used to solve the business problem which are arising out of increasing
complexity of nature of business.

4. Historical Cost Accounting

It means that costs are recorded after being incurred. This is used for comparing with
predetermined costs to evaluate performance.

S. Budgetary Control
Under Budgetary control techniques, future financial needs are estimated and arranged according
to an orderly basis. It is used to control the financial performances of business concern. Business
operations are directed in a desired direction.

6. Revaluation Accounting
The fixed assets are revalued as per the revaluation accounting method so that the capital is
properly represented with the assets value. It helps to find out the fair return on capital employed.

7. Management Information System

The free flow communication within the organization is essential for effective functioning of
business. Hence, the management can design the system through which every employee of an
organization can assess the information and used for discharging their duties and taking quality
decisions.

8. Statistical Techniques
There are a lot of statistical techniques used in removing management problems. Methods of
least square, regression and quality control etc. Are some examples of statistical techniques.

9. Standard Costing
Standard costing is predetermined cost. It provides a yard stick for measuring actual
performance. It is used to find the reasons for the deviations if any.

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10.Marginal Costing
Marginal costing technique is used to fix the selling price, selection of best sales mix, best use of
scarce raw materials or resources, to take make or buy decision, acceptance or rejection of bulk
order and foreign order and the like. This is based on the fixed cost, variable cost and
contribution.

Limitations or disadvantages of management accounting

1. Based on Financial and Cost Records

Both financial and cost accounting information are used in the management accounting system.
The accuracy and validity of management account is largely based on the accuracy if financial
and cost records maintained. These records determine the Strength and weakness of management
accounting.

2. Personal Bias
The analysis and interpretation of financial statements are fully depending upon the capability of
the analyst and interpreter. Hence, personal prejudices and bias of an individual can affect the
objectivity and effectiveness of the conclusions and recommendations.

3. Lack of Knowledge and Understanding of the Related Subjects

Financial accounting, cost accounting, statistics, economics, psychology and sociology are the
related subjects of management accounting. The organization can derive more benefits of
management accounting if the management accountant has thorough knowledge over related
subjects. if not so, the success of management accounting system is questionable.

4. Provides only Data

Under management accounting system, many alternatives are developed to solve a problem and
submitted before the management. Out of the many alternatives available, the management can
select any one of alternatives or even discard all of them. Hence, management accounting can
only provide data and not prescribe any course of action.

5. Preference to Intuitive Decision Making

Scientific decisions can be taken with the help of using management accounting techniques. But,
majority of the management accountant and top level

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executives prefer their past experience and intuition in making business decisions. The reason is
that an intuitive decision making is very simple and easy.

6. Management Accounting is only a Tool

The management accountant is using the management accounting system as a tool to give advice
and facilitate the management for decision making. The actual decisions, their implementation
and follow up action are the prerogative of the management.

7. Continuity and Participation

The decisions are taken by the management. Their implementation is vested in the hands of
management accountant. The continuous efforts of management accountant and full participation
of all levels of management are necessary for successful operation of management accounting
system.

8. Broad Based Scope

The scope of management accounting is very wide since it considers both monetary and non-
monetary transactions of the business organization. The limited knowledge and experience of the
management accountant can lead to prepare the data unreliable and undependable.

9. Costly Installation
cost of installation of management accounting system is very high. Hence, a small business
organization cannot bear the cost of such installation. Moreover, the utility of this system is
restricted only to big and complex organizations.

10.Resistance to Change
The installation of management accounting system brings some changes in the organizational set
up and accounting practice. The personnel concerned may resist such changes unless they are
getting confidence.

11.Evolutionary State
Management accounting is a recent development discipline. The utility of management
accounting is depend upon the intelligent interpretation of the data available for managerial use.
Hence, it is presumed that the management accounting stands in evolutionary stage.

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 Conclusion

Management accounting ensures the transformation process from inputs, through the production
process to output is viable, and it plays a principal role in management decision-making.
Management accounting is the process of identifying, measuring, accumulating, analyzing,
preparing, interpreting and communicating information that helps managers fulfill organization
objectives. An organization having a right managerial accounting system is important as
choosing the right administrator for any corporation. As the managerial accounting system is
hoped to offer management with reliable and accurate information, administrators have to certify
that the right structure for their model of business is chosen for implementation. The
management accounting study assists students lucidly illustrate; professors cannot uphold any
blooper. The main reason is that accountancy is regarded as the cornerstone of each business and
therefore needs accuracy. Providing understandable chart and tables of financial accounting is
the common issue which accounting student encounter in writing an assignment. The reason why
persons require management accounting study help. Accounting is an understandable but
practical discipline which details the transactions of finance relating to organizations or business.
The students have to examine thousands of transactions which a company can perform
throughout a specific time span. It becomes difficult for them to accumulate that data and
integrate them.

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 References
 Appelbaum, D., and Kogan, A. (2017). Impact of business analytics and enterprise
systems on managerial accounting. International Journal of Accounting Information
Systems, 25, 29-44.
 Blocher, E. (2016). Cost management: A strategic emphasis.
 Drury, C. {2015). Management and cost accounting (9th Ed.). Cengage learning.
 Edmonds, T., and Olds , P. (2013). Fundamental Managerial accounting Concepts (7th
Ed.). Maidenhead: McGraw.
 Horngreen, C., Sunden, G., Stratton, W., Burstalher, D., and Schwartzberg,
J. (2013). Introduction to Management Accounting. Global Ed. Harlow Pearson.

 Horngren, C. T. {2017). Introduction to management accounting. Place of publication not

identified: Prentice Hall.

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