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Module 1

This document discusses management accounting. It defines management accounting and explains that it assists management with planning, organizing, controlling, and decision making. It then contrasts management accounting with cost accounting and financial accounting. Some key differences include management accounting being concerned with both qualitative and quantitative data, projection of future figures, and not following strict rules/regulations. The document also outlines the objectives, role in decision making, and analysis tools of management accounting.

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28 views11 pages

Module 1

This document discusses management accounting. It defines management accounting and explains that it assists management with planning, organizing, controlling, and decision making. It then contrasts management accounting with cost accounting and financial accounting. Some key differences include management accounting being concerned with both qualitative and quantitative data, projection of future figures, and not following strict rules/regulations. The document also outlines the objectives, role in decision making, and analysis tools of management accounting.

Uploaded by

Rasha rubeena
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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MANAGEMENT

ACCOUNTING
BCOM(HONOURS) PROGRAMME
CREDITS 3
CODE: ACCT315
Management Accounting
• As per CIMA Official Terminology “Management accounting is
the application of the principles of accounting and financial
management to create, protect, preserve and increase value
for the stakeholders of for-profit and not-for-profit enterprises
in the public and private sectors.”
• Management accounting is an integral part of management. It
assists management by provision of relevant information for
planning, organizing, controlling, decision making etc.
Difference between cost Accounting and Management Accounting
Basis Cost Accounting Management Accounting
(i) Nature It records the quantitative It records both qualitative and

aspect only. quantitative aspect.


(ii) Objective It records the cost of It Provides information to
producing a product and management for planning

providing a service. and co-ordination.

(iii) Area It only deals with cost It is wider in scope as it includes


Ascertainment. financial accounting, budgeting,

taxation, planning etc.


(iv) Recording of It uses both past and It is focused with the

data present figures. projection of figures for future.

(v) Development Its development is related It develops in accordance to


to industrial revolution. the need of modern business

world.
(vi) Rules and It follows certain It does not follow any specific
Regulation principles and procedures rules and regulations.

for recording costs of

different products.
Difference between Financial Accounting and Management Accounting
Points of Distinction Financial Accounting Management Accounting
Object The object is to record various The object is to help the
transactions in order to find out management in formulation of
profit/loss and financial position policies and strategies
of the organization

Nature It is concerned with historical It is concerned with projection of


data data for the future
Subject Matter It is concerned with analysis of It is concerned with analysis of
results of the organization as a results of different units or
whole departments

Compulsion It is compulsory It is not compulsory

Precision It records only the actual figures. It does not lay emphasis on actual
It gives more emphasis on figures. It is less precise as
precision compared to financial accounting

Reporting Reports are useful to outsiders Reports are useful to different


viz. bankers, investors, levels of management
shareholders, Government etc.
Monetary/Non Monetary Financial Accounting Management Accounting
Speed of Reporting The speed of reporting is slow but The speed of reporting is fast and
accurate accurate

Accounting Principles It is governed by GAAP It is not governed by any set


principles

Period It records only monetary transactions It records monetary as well as non


or events monetary events

Publications Financial accounts are published for Management Accounting statements


the benefit of public are not published. They are for
internal use

Audit Financial accounts are audited Statements under Management


It is mandatory Accounting are not audited. It is not
mandatory
Objectives of Management Accounting
1. Collection of data
2. Analysis of Data
3. Presentation of Data
4. Planning
5. Controlling
6. Reporting
7. Coordinating
8. Decision Making
Role of Management Accountant in Decision
Making
• Collection of Information: Managerial Decisions are based on
information. The Management Accountant has to collect the
information from internal and externa sources and make it available
to the management
• Evaluation of Information: All the information collected may not be
needed by the management. The Management Accountant has to
evaluate the information and supply the needed information only.
• Interpretation of Information: The Management Accountant has to
analyze and interpret the information and give his opinion about the
decision to be taken compile the cost of distribution, production,
inventories, supervise all matters relating to taxation etc.
Role of Management Accountant in Decision
Making
• Reporting of Information: The Management Accountant has to
prepare reports to supply information to the management. The
information helps the management in understanding implications of
the various decisions.
• Controller: The Management Accountant plays the role of a controller.
As a controller he has to supervise all accounting records, prepare
interpretation of financial statements,
Analysis and Interpretational Tools
• Comparative Financial statements – Horizontal analysis
• Common size statements – Vertical analysis
• Trend Percentages
• Information is not meaningful without comparison.
• Let's say a company make 100 million a year, what do you think?
• If you can make judgement right there, you either haven't thought
through it thoroughly or you have made a comparison with the
performance of some other companies subconsciously.
• The major objective of comparative analysis is to gain insights about the
performance of company through comparison. For example,
• How much more does the company earn compared to last year?
• How much return can the company generate for equity holders, i.e. ROE,
compared to previous record?
• Is the company improving or deteriorating over the past few years?
• Is the company outperforming its peers or underperforming?
• Comparative analyses are important to both the business and potential
investors.
• The analysis is a method to find any flaws in a plan or forecast and
allows the business to identify and correct assumptions.
• Generally, a spreadsheet analysis is set up to allow the user to see several
possible outcomes.
• Investors or lenders use the analysis as part of due diligence to
determine if a project or expansion will be funded.

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