Management Accounting. The Functions of Management Planning Acting Controlling Feedback.

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Presentation transcript:

Management Accounting

The Functions of Management Planning Acting Controlling Feedback

Management Accounting A process of: -Identification -Measurement -Accumulation -Analysis -Preparation and Interpretation -Communication

Nature Various system of Management Accounting Concerned with collection, analysis and communication of accounting information A science – objectification & quantification An art – involves subjective judgment

Nature (contd.) Futuristic Concerned with the problem of choice Recognition of the nature of the various elements of costs Causative relationship of various variables

Scope Financial Accounting Cost Accounting Revaluation Accounting Budgetary Control Inventory Control Statistical Methods Interim Reporting Taxation Office services Internal Audit

Phases of decision making Ph 1. Recognizing and defining problem Ph 2. Searching for alternatives Ph 3. Evaluating alternatives Ph 4. Selecting the best alternative Ph 5. Reporting

Functions of Management Accounting Two types: 1. Operating functions 2. Theoretical functions

Operating functions Recording of data Validating the data Interpretation of data Communicating the data

Theoretical functions Helps in planning Helps in organizing Helps in controlling Helps in coordinating Helps in decision making

Advantages Systematic regularity Maximum return Better and improved services Better industrial relations Control wastages Economic advantages

Limitations Dependency on accuracy of records Need for continuous coordinated efforts Mere tool of management Subjective judgement involved Installation a costly affair

Distinction between Financial Accounting and Management Accounting

Primary Users Financial Investors Creditors Government authorities Management Internal managers of the business

Purpose of Information Financial Help investors, creditors, and others make investment, credit, and other decisions Management Help managers plan and control business operations

Focus and Time Dimension Financial Reliability, objectivity, and focus on the past Management Relevance Futuristic

Type of Report Financial Financial statements restricted by GAAP, Accounting Standards Management Internal reports not restricted by GAAP; determined by cost- benefit analysis

Verification Financial Annual independent audit by CAs Management No independent audit

Scope of Information Financial Summary reports primarily on the company as a whole Management Detailed reports on parts of the company

Behavioral Implications Financial Concern about adequacy of disclosure Management Concern about how reports will affect employees behavior