MANAGEMENT ACCOUNTING

DEFINITION- 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 .

NATURE

· Helps in decision making: It helps the management in taking decisions about future and day –to-day operation of the business provides us the information which helps in increasing efficiency of the business

· Concerned with future: it is futuristic in nature. it gives the management data for taking decisions, because decision making is for future and which is based on past data it helps in selecting an appropriate action for the future.

· Establishes cause& effect relationships: management accounting establishes a cause and effect relationship. If the results are not according to the expectations, the reasons for the same are identified and in case of profits, the factor related with profitability are studied so that they can further be improved.

· Helps in planning and control: it provides frame work for comparing the actual results with the standards and finding deviations.

· Use of special techniques: it uses special techniques and concepts for analysis. These techniques include fund flow and cash flow statements, standard costing, budgetary control, marginal costing, ratio analysis etc.

SCOPE

· Financial accounting: it is concern with preparation with financial statement i.e., trading& P/L A/c and balance sheet. Management accounting is concern with analysis and interpretation of financial statements.

· Cost accounting: it is concern with ascertainment of cost and control of cost. It can be helpful in managerial decision making such as fixation of price of the product, launching of new products in the market etc.

· Budgeting: budgets are prepared in regard to each cost centre. The purpose of it is to find out the deviation from the targeting course of action.

· Methods and procedure: it is also aimed at following proper methods and procedures. It is done so that the work in the organisation move smoothly without any interruptions.

Functions of Management Accounting

1) Collection of Data:

This is the first function of management accounting. It deals with collection of relevant data for further processing and analysis. Data is collected through various sources such as internal and external sources. Internal sources include financial statements, production records, sales reports, etc. External sources include Journals, Magazines and various publications of financial institutions & researches etc.

2) Modification of Data:

After collecting data, it is modified. Modification is done in such a way that becomes understandable easily. Under this function classification and tabulation is done. Different methods of modification of data are used.

3) Planning & Forecasting:

This is also very important function of management accounting. Various objectives of the business are set and in order to achieve these objectives plans & policies are framed. These techniques are useful to management in planning various activities.

4) Organizing:

Organization creates a framework for delegation of authority and assignment of responsibility within which the functions of management may be discharged. Organization requires arrangement of human and physical resources in an organization in a manner to ensure most efficient utilization of resources. Management accounting helps the organization by analyzing and assigning specific responsibilities to the executives to fulfill the goals.

5) Coordination:

Co-ordination involves making good relations in organization conflicts and ensuring that all individual working in the organization work in a team for the achievement of organizational objectives.

6) Motivating the employees:

Management accounting also motivates the employees working in an organization by setting the goals & measuring the actual performance. Proper planning increases the effectiveness of the organization & motivates the employees.

7) Controlling:

Controlling is very important. All efforts are directed towards controlling. It ensures that all activities are carried in planned manner. Controlling involves comparisons of actual performance with the standard performance, finding deviation and correcting deviation.

8) Analysis and interpretation of financial statements:

Financial statements are analyzed to evaluate financial position in terms of profitability, liquidity and solvency. Management accounting makes use of various tools such as comparative statements, common size statements, trend analysis ratio analysis, funds flow statements, cash flow statements, etc.

9) Using quantitative information:

Management accounting also make use of quantitative information in addition to quantitative information such as government policies, customer preferences, efficiency of workers etc.

10) Communication:

Management accounting ensures effective communication within the organization and outside. Information is communicated to managers, customers, etc.

ADVANTAGES

1) Better decision making:

Decision making is the important element of management. Right decision can put the organization on a right track of growth, but a wrong decision can become the reason for its failure. Management accounting helps in making decisions in such a way that effectiveness of organization can be increased.

2) Helps in planning:

Management accounting also helps in planning. It makes various short term and long term plans for the organization.

3) Helps in coordination:

Co-ordination provides a smooth environment in the organization. It aims at removing the conflicts within the organization.

4) Helps in control:

Management accounting helps in exercising control over the business operations. Various control techniques are used such as standard costing, budgeting control, etc.

5) Increases efficiency:

Management accounting increases the efficiency of management. It ensures that all the resources are used in an optimum manner. This is done by way of preparing various plans &policies for the organization.

LIMITATIONS

1) Based on financial accounting:

Management accounting is based on financial accounting. Financial accounting is historical in nature. If financial data is not reliable then management accounting will not provide the reliable results.

2) Lack of knowledge:

It requires knowledge of accounting, statistics, economics, taxation, etc. but a single person may not possess the knowledge of decision making.

3) Top heavy structure:

It cannot be used by small organizations. It requires wide network of rules and regulations. It also requires considerable investment of time and money. Thus it can be used by only big concerns.

4) Evolutionary stage:

Management accounting is passing through its evolutionary stages. It is not fully developed discipline.

5) Not an alternative:

Management accounting is not an alternative of administration. It just provides the information that manages the affairs of the business. The efficiency of the business is not automatically improved. Management accounting is not substitute of sound management.

Submitted by-

Nandini chaudhary (c)143

Manpreet kaur (b)78

Chandan Sharma(a)17