Management Accounting | Meaning | Objectives | Functions| Limitations

 

 

 

Management Accounting | Meaning of Management Accounting 

Management accounting is also known as managerial accounting.

Management accounting is the presentation of accounting information.

It helps to the management in the creation of policies and day to day operation of the organization.

From cost accounting and financial accounting, the managements make policy or planning, decision making, control, coordination, motivation etc.

 

 

 

Definition of management accounting

According to Robert N. Anthony, “Management accounting is concerned with accounting information that is useful to management.”

 

According to Meigs and Meigs, “Management accounting involves the preparation and use of accounting information for planning and controlling the operation of the business.”

 

 

Objectives of Management Accounting

The main objective of business organization is to earn maximum profit.

Management accounting provides information to management how to maximize the profit.

 

Planning

Management accounting helps to management for planning in advance; some planning is:

What to do,

How to do,

When to do,

Who is to do?

These plans may be short-term or long-term, introduce new product, increase sales volume in existing market, expand of market, additional fund for long term investment, additional fund for assets replacement etc.

 

Decision-making

To choose best alternative from more or many choices is called decision; some decisions are:

Fixation of price;

Whether price should be reduced or not to increase sales volume;

Whether factory should production full capacity or not;

Determination of most profitable level of production;

Whether to make or buy spare parts;

Whether new product should be introduced in the market;

Whether the product should be exported or not;

Whether the product should be discontinued from the market;

Whether new fixed assets should be purchased etc.

 

Controlling

Under cost accounting, planning is on estimation basis.

But in actual, they may different than estimated.

To find out causes of variances or deviation control is needed.

 

Coordinating

Management accounting helps to coordinating between or among:

Departments or branches

Department and sections.

Staffs etc.

 

Motivation

It is the new system of management accounting.

Under motivation, workers or staffs are encouraged to do work in their responsibility.

Some motivation factors are:

Wage or salary paid in time

Bonus and incentive

Training and seminar

Promotion etc

 

 

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Unit Costing (Output Costing)	http://tiny.cc/srvhuz

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Scope of Management Accounting

The scope of management accounting is very wide and broad. The main scopes of management accounting are:

Financial accounting

It provides historical information. From past data, management can take decision for future.

It contains journal entries, ledgers, trading account, profit and loss account, balance sheet, cash flow statement etc.

These accounts are helpful for cash position, assets and liabilities of organization.

 

Cost accounting

It provides cost information of product or service at different stage.

It includes cost sheet, job costing, variable costing, absorption costing, standard costing, contract costing and process costing etc.

 

Tax accounting

Every state and country has its government.

While doing business in state or country, organization has to pay tax or value added tax (VAT).

Management accounting is helpful to determine tax payable on income.

 

Auditing

To check financial transactions about correct or incorrect, auditing is required.

There are two types of auditing, internal auditing and external auditing.

Internal auditing is operated for checking up fraud and external auditing is done for approved to financial data by authorized auditors.

 

Budgeting and forecasting

Budgeting means arrange funds for various sections or department for operating business.

Forecasting means guess or think in advance.

Both budgeting and forecasting are required for management accounting.

 

Office service

Management accounting requires different types of data for decision making.

Office service helps to management accounting by providing report, data process, references, printing mail, drafting etc.

 

 

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Accounting Equation	http://tiny.cc/c89jkz
Journal Entries in Nepali	http://tiny.cc/uaakkz
Journal Entries	http://tiny.cc/8aakkz
Journal Entry and Ledger	http://tiny.cc/caakkz
Ledger	http://tiny.cc/haakkz
Subsidiary Book	http://tiny.cc/399jkz
Cashbook	http://tiny.cc/889jkz
Trial Balance and Adjusted Trial Balance	http://tiny.cc/c59jkz
Bank Reconciliation Statement (BRS)	http://tiny.cc/q59jkz
Depreciation	http://tiny.cc/ugakkz
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Financial Accounting and Analysis (All videos)	http://tiny.cc/jlersz
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Accounting for Long Lived Assets	http://tiny.cc/plersz
Analysis of Financial Statement	http://tiny.cc/slersz

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Functions of Management Accounting

The basic function of management accounting is to assist the management.

The other functions of the management are planning, organizing, directing and controlling.

Provides data

Management accounting provides vital source of data for management planning.

The accounts and documents are related to past progress of the enterprise.

These data are for making forecasts for the future.

 

Modifies data

The accounting data required for managerial decisions is properly compiled and classified.

For example, purchase figures for different months may be classified into product-wise, supplier-wise and territory-wise.

 

Analyses data

The accounting data is analyzed for effective planning and decision-making.

For this purpose, the data is presented in a comparative form.

Then ratios are calculated.

 

Communication

Management accounting provides a means of communication.

The management plans upward, downward, inward and outward of the organization.

At the start, it identifies the feasibility (possibility) and consistency of the various segments of the plan.

At later stages, information is provided to all the parties about the plans.

 

Controls facility

Management accounting helps in translating given objectives and strategy into specified goals.

All this is made possible through budgetary control and standard costing.

They are integral part of management accounting.

 

Uses information

Management accounting does not limit itself to financial data.

It also helps to management in decision making.

But this information may not be capable to measure in monetary terms.

Such information may be collected form special surveys, statistical collecting, engineering records etc.

 

 

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Limitation of Management Accounting

Although management accounting has broad and wide scope yet it has following limitations:

Accuracy information

Management accounting looks-for accurate and correct information.

So, management decision may not be effective for financial, non-monetary and cost data.

 

Costly installation

Management accounting needs large scale manpower, many formalities, standard costing etc.

These require large cost.

It is suitable for large organization only.

 

Knowledge of different subjects

Effective management accounting needs knowledge of different subjects like accounting, economics, statistics, taxation etc.

It is not easy it find out these subjects knowledge in one person.

 

No specific procedures

It is used for different deviation or variation.

There is not specific data or procedures.

Therefore, past data or experience may not be suitable for present and future.

 

Sixth sense decision

Management accounting needs scientific and systematic decision for quantitative technique. 

In spite of these, management takes decision by intuition (sixth sense or insight).

 

No substitute of administration

Management accounting creates tools and techniques for decision making but it is not substitute of administration.

 

 

Differences between Cost Accounting and Management Accounting

Cost accounting

Cost accounting is related to manufacturing.

In cost accounting, raw materials are converted into work-in-progress or finished goods with the help of men and machine.

 

Management accounting

Management accounting is also known as managerial accounting.

Management accounting is the presentation of accounting information.

It helps to the management in the creation of policies and day to day operation of the organization.

From cost accounting and financial accounting, the managements make policy or planning, decision making, control, coordination, motivation etc.

 

Differences between Cost Accounting and Management Accounting

Bases	Cost accounting	Management accounting
Base	Cost accounting provides a base for management accounting.	Management accounting is derived from both cost and management accounting.
Role	It helps to collect costing data for the management.	It helps to clear cost idea and analysis the business problems.
Status	Cost accounting comes after management accounting; so it is junior than management accounting.	Management accounting is senior than cost accounting in position.
Tools	It has basic tools of variable costing, standard costing, breakeven point etc	It has basic tools of cash flow statement, ratio analysis along with variable costing, standard costing and breakeven point.
Scope	It does not include financial accounting and tax accounting.	In includes cost accounting, financial accounting and tax accounting.
Installation	It can be installed without management accounting.	It needs cost and financial account for base.

 

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