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.
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.”
The main objective of business organization is to earn maximum profit.
Management accounting provides information to management how to maximize the profit.
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.
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.
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.
Management accounting helps to coordinating between or among:
Departments or branches
Department and sections.
Staffs etc.
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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Cost Reconciliation Statement |
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Unit Costing (Output Costing) |
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The scope of management accounting is very wide and broad. The main scopes of management accounting are:
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.
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.
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.
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 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.
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 |
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Journal Entries in Nepali |
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Journal Entries |
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Journal Entry and Ledger |
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Ledger |
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Subsidiary Book |
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Cashbook |
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Trial Balance and Adjusted Trial Balance |
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Bank Reconciliation Statement (BRS) |
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Depreciation |
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Financial Accounting and Analysis (All videos) |
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Accounting Process |
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Accounting for Long Lived Assets |
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Analysis of Financial Statement |
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The basic function of management accounting is to assist the management.
The other functions of the management are planning, organizing, directing and controlling.
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.
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.
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.
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.
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.
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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Although management accounting has broad and wide scope yet it has following limitations:
Management accounting looks-for accurate and correct information.
So, management decision may not be effective for financial, non-monetary and cost data.
Management accounting needs large scale manpower, many formalities, standard costing etc.
These require large cost.
It is suitable for large organization only.
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.
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.
Management accounting needs scientific and systematic decision for quantitative technique.
In spite of these, management takes decision by intuition (sixth sense or insight).
Management accounting creates tools and techniques for decision making but it is not substitute of administration.
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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