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Introduction

Management accounting involves the identification, measurement, and communication of economic information to aid managerial decision-making in planning, implementation, and control. It differs from financial accounting in its focus on internal management needs, providing relevant information tailored to specific management purposes. Additionally, management accounting utilizes data from cost accounting for performance appraisal, profit planning, and control, ultimately contributing to a company's financial goals.

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Dr. Meghna Dangi
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5 views

Introduction

Management accounting involves the identification, measurement, and communication of economic information to aid managerial decision-making in planning, implementation, and control. It differs from financial accounting in its focus on internal management needs, providing relevant information tailored to specific management purposes. Additionally, management accounting utilizes data from cost accounting for performance appraisal, profit planning, and control, ultimately contributing to a company's financial goals.

Uploaded by

Dr. Meghna Dangi
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Nature of Management

Accounting
NATURE OF MANAGEMENT
ACCOUNTING

FINANCIAL ACCOUNTING

COST ACCOUNTING

MANAGEMENT ACCOUNTING
Accounting
Accounting is the process of identifying, measuring
and communicating economic information
to permit informed judgements and
decisions by users of information.

Business Accounting System

Financial Management
Cost Accounting
Accounting Accounting
Management Accounting Information

Management accounting information is


the accounting information
specifically prepared to
aid managers.
Management accounting information
is used in three managerial functions

1. Planning
Planning is the process of deciding what action
should be taken in the future.
2. Implementation
Implementation involves specific actions planned
in advance to fulfill the budgets.
3. Control
Control comprises managerial action to correct
conditions that cause deviation between
the actual and planned performance.
Functions of Controller

Controller is the highest level management


accountant.

Management Accountants are responsible


for the design and operation of the
management accounting
system.
Distinction between
Controller and Treasurer
Controllership Treasureship
1. Planning for control 1. Provision of capital
2. Reporting and 2. Investor relations
interpreting
3. Evaluating and 3. Short-term financing
consulting 4. Banking and custody
4. Tax administration 5. Credits and
5. Government reporting collections
6. Protection of assets 6. Investments
7. Economic appraisal 7. Risk management
Management Accounting vs.
Financial Accounting
Management Financial
Dimension
Accounting Accounting
Information Varies according to
Unified structure
precision use of the information

Sources of Whatever is useful Generally accepted


principles to Management accounting principles

Information
Optional Statutory Obligation
precision

Time- Historical and


Historical
orientation estimates of the future
Management Accounting vs.
Financial Accounting
Management Financial
Dimension
Accounting Accounting
Responsibility
Report entity Overall organisation
centres
External
A means to the end of
Purpose reporting/statements for
assisting management
outside users
Relatively small group:
Users Relatively large
know identity

Time- Historical and


Historical
orientation estimates of the future
Management Accounting vs.
Financial Accounting
Management Financial
Dimension
Accounting Accounting
Information Varies according to
Unified structure
precision use of the information

Sources of Whatever is useful Generally accepted


principles to Management accounting principles

Information
Optional Statutory Obligation
precision

Time- Historical and


Historical
orientation estimates of the future
Important Similarities between
Financial and Management Accounting

Most elements of financial accounting are also


found in management accounting.

Basic data collected for both are in accordance with


the generally accepted financial accounting
principles to avoid duplication.

Both are used in decision making.


Relationship between Cost
Accounting and Management
Accounting
Cost Accounting provides Data for Appraisal
Information.

Cost Accounting helps in Profit Planning.

Cost Accounting is useful for the purpose of


control.
Cost Accounting

Provides Data
Purpose of
for Performance Profit Planning
Appraisal
Control

Management
Accounting
Management Accounting
Information and Their Uses
Management Accounting information is used
for three distinct purposes.

Purposes Uses
Historical Data Future estimates
Basis for external reporting.
1. Measurement Analysing economic performance Normal pricing decisions
Cost-plus contract payments.
Strategic planning
2. Control Analysing managerial performance
Budgeting
3. Alternative Capital budgeting
None
choices Short-run decisions
Measurement Purposes
For the measurement purpose the management accounting
system focuses on the measurement of full costs.

Full Cost Accounting measures the resources used in


performing some activity. It is the sum
of direct and indirect costs.

Full costs are used in


(i) Financial reporting,
(ii) Analysing economic performance and
(iii)Cost-plus contracts.
Control Purposes

For control purposes, management accounting


measures costs by responsibility centres.

Responsibility Centres is an organisation unit


headed by a manager who is responsible
for its operations and performances.
Alternative Choice Decisions

The alternative decisions use differential costs.

Differential costs are costs which differ according


to the alternatives.

For short-run decisions only direct costs are


relevant. For long-range decisions full
costs are relevant.
Types of Production Processes
Type of Production Description of Example of
Process Process Manufacturer

Job Shop Low volume Disney


Little standardization
Unique products

Batch Multiple products Caterpillar


Low volume

Assembly Line A few major products Ford


Higher volume

Mass Customization High volume Dell


Many standardized components
Customized combination of components

Continuous Flow High volume Exxon


Highly standardized commodity products
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Contributions of Managerial
Accounting
Use the internet to access the website of one of
the following company:
Deccan Aviation www.flyairdeccan.net
Coca Cola www.cocacola.com
Larsen & Tubro www.Intecc.com
IBM www.ibm.com
Sears www.sears.com
Find the management discussion and analysis portion of
the firm’s most recent annual report. Then briefly discuss
how managerial accounting can contribute to the
company’s financial goals.
Suggested Answer

Companies’ financial goals often include


profitability, earnings per share, growth
in the stock price, sales growth, and so
forth. Managerial accounting can make
an important contribution to all of these
goals.
Suggested answer
 Providing information for decision making and
planning.
 Assisting managers in directing and controlling

activities.
 Motivating managers and other employees

towards organization’s goals.


 Measuring performance of activities, managers,

and other employees.


 Assessing the organization’s competitive position.

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