Management accounting - Overview
The subject ‘Management Accounting is very important and useful for optimum utilization of existing resources. These are branches of accounting and had been developed due to limitations of financial accounting.
It is an indispensable discipline for corporate management, as the information collected and presented to management based on cost and management accounting techniques helps management to solve not only specific problems but also guides them in decision making.
Keeping in view the importance of this subject, various topics on Cost and Management Accounting have been prescribed in the syllabus of the CS Executive Programme with the objective of acquainting the students with the basic concepts used in cost accounting and management accounting having a bearing on managerial decision-making.
The scope of management accounting is very wide. It includes within its fold all aspects of business operations. The following areas indicate the scope of management accounting.
1. Financial Accounting
Financial accounting provides historical information. It forms the basis for future planning and financial forecasting. A properly designed financial accounting system is a must for securing full control and coordination of business operations.
2. Cost Accounting:
Cost accounting provides various techniques of costing like marginal costing, standard costing, operation costing, etc. These techniques play an important role in assisting the management in the formulation of policy and the operations of the undertaking.
3. Budgetary control:
This includes framing of budgets, comparison of actual performance with budgeted performance, computation of variances, finding out their causes, and suggesting remedial measures.
4. Inventory control:
It is concerned with control over inventory from the time it is received to its disposal.
5. Reporting:
Reporting includes the preparation of the monthly, quarterly, half-yearly income statements and other related reports such as cash flow and funds flow statements.
These reports are submitted to the management for evaluation of performance and decision-making.
6. Statistical Methods:
Statistical tools like graphs, charts, index numbers, etc. are used for the presentation of information to various departments.
7. Taxation:
It includes preparation of income statement, assessing the effect of tax on capital expenditure proposals and pricing.
8. Methods and Procedures:
They deal with organizational methods for cost reduction, procedures for improving the efficiency of accounting and office operations.
9. Internal Audit:
This refers to the establishment of a suitable internal audit system for internal control.
10. Office Services:
They cover a wide range of activities like data processing, filing, copying, printing, communication, etc.
Functions of Management accounting:
Functions of management accounting include all activities connected with collecting, processing, interpreting, and presenting information to the management. The main functions of management accounting are:
1. Forecasting:
Making short-term and long-term forecasts and planning the future operations of the business.
2. Organising:
Organizing the human and physical resources of the business. Assigning specific responsibilities to different people do this.
3. Co-ordinating:
Providing different tools of co-ordination. Examples of such tools are budgeting, financial reporting, financial analysis, interpretation, etc.
4. Controlling
Controlling performance by using standard costing, variance analysis, and budgetary control.
5. Analyses and Interpretation
Analyzing and interpreting financial data in a simple and purposeful manner.
6. Communicating
Communicating the results of business activities through a prompt and accurate reporting system.
7. Economic Appraisal
Appraising of social and economic forces and government policies and interpreting their effect on business.