Meaning of Management Accounting

Meaning  of Management Accounting

Management Accounting is the presentation of accounting information in such a way as to assist management in the creation of policy &day to day operation of an undertaking. Thus, it is related  to the use  of accounting data collected with the help of financial & cost accounting for the purpose of policy formulation, planning, control,& decision making by the management. Some leading definition of management accounting are given below:

Institute of cost & Management Accountants, U.K, defines -"Management Accounting is the application of professional knowledge & skill in the preparation of accounting information  in such a way as to assistant management in the formulation of policies & in the planning & control of the operation of the undertaking,"

According to American Accounting Association - "Management Accounting is the application  of appropriate techniques & concept in processing historical & projected economics data of an entity to assist management  in establishing plan foe reasonable economics objectives & in the making of rational decisions with a view towards these objectives."

In R.N Anthony's view American Accounting Association -"Management Accounting is concerned with accounting information that is useful of management."

According to saying forwarded by  Bostock," Management Accountancy can be defined as the art of  presenting to management such figures, whether in terms of money or other units, as well assist  management to do its job."

On the basis of the above mentioned definitions, it can be concluded that management accountancy is regarded as the information that is collected, reported & defined in detail by an accountant. These financial informations & reports are properly utilised by an efficient manager to fulfil the objectives of an organisation.Thus, Management Accounting is concerned with reframing the accounting  information  to make it useful  for the management. The above definitions also clearly indicate that any system of accounting  which assist management in carrying out its functions more efficiently may be termed as management accounting.

Functions of Management Accounting

All  activities related to collecting , processing , interpreting & presenting  information to the management are included in the functions of management accounting. The main functions are:

1)Organising

 The management accountant helps the management in organising the human & non- human resources of the business by analysing different functions & assigning specific responsibility. He/ She tries to organise the accounting & finance function of the business on the modern lines.

2) Controlling Performance

The management accountant helps in controlling the performance of the organisation by using standard costing , budegetary control , accounting ratios, cash & fund flow statement, cost  reduction programmes & evaluating the capital expenditure proposals & return on investment.

3)Co-Ordinating

The management accountant increases the efficiency of organisation & maximises its profits by providing different tools of co- ordination as budgeting ,financial reporting, financial analysis & interpretation  e.t.c .It helps the management by reconciling the cost & financial accounts, by preparing budgets & setting the standard  cost & analysing  variances in costs to facilitate management by exception.

4 ) Communication

The management  accountant prepares various reports in order to communicate the result to the superiors, to motivate the employees, to exercise effective control on their activities & to about the progress of business through published accounts & returns.

5) Forecasting & Planning

 Management accounting is to provide necessary information & data for making short-term& long -term forecasts & planning operations of business, For doing this, the management accountant uses techniques of statistics, like profitability, trend study of correlation & regressions, budgeting & standard costing , capital budgeting, marginal costing & funds flow statement e.t.c

These are  important tools in the hands of management accountant for the planning of the business.

6) Financial Analysis & Interpretation

The management accountant analyses the data & presents it before the management in non- technical manner along with his comments & suggestions so that the owners & the top personnel  in the management may understand it & take decision without any difficulty.

7) Special Studies

The management  accountant tries to maximise the profits of the concerns by conducting various cost & economics studies on regular basis. He tries to determine the needs of long-term & short- term capital, recommends appropriate capitalisation for the enterprises, evaluation of alternative capital expenditure proposals & their impact  on the return & profits of the concern.

8)  Miscellaneous Functions

 Besides the above functions, the management accountant supplies useful information to different functionals  authorities, provides necessary accounting information & advice for price determination & pricing decisions & helps to make strategic decision as seasonal or temporary suspension of production ,makes or buys decisions, replacement decisions, & expansions or closure of particular division or department  e.t.c .

Scope of Management Accounting

The scope of management is very wide & broad-based. It includes all information which is provided to the management for financial analysis & interpretation of the business operation. The following fields of activities are included in the scope of this subject.

1) Financial Accounting

Financial Accounting provides historical information which is very useful for future  planning & financial  forecasting. Financial accounting system is a must for obtaining full control & co-ordination of operation of the business.

2) Cost Accounting

It provides  various techniques of costing like marginal costing ,standard  costing, differential & opportunity cost analysis ,e.t.c, which play a useful role in the operation & control of the business undertaking.

 3) Cost Control Procedures

These procedures are intergral parts of the management  accounting process & include inventory control, time control, budgetary control & variances analysis, e.t.c.

4) Tax accounting

It is an integral part of management accounting & includes  preparation of income statement,determination of  taxable income & filing up the return of income ,e.t.c.

5) Reporting

The management accountant is required to submit reports to the management on the various aspects of the undertaking. While  reporting , he may use statistical tools for the presentation of information as graphs, charts , index numbers & other devices in order to make the information more impressive & intelligent.

 6) Internal Financial Control

Management accounting includes the internal control method like internal audit, efficient office management e.t.c.

7) Budgeting & Forecasting

Forecasting on the various aspects of the business is necessary for budgeting. Budgeting controls the activities of business through the operation of budget by comparing the actuals  with the budgeted figures, finding out the deviations, analysing the deviations in order to pin out the responsibility & take  remedial action so that adverse things may not happen in future. Both techniques are necessary for the management accountant.

8) Interpretation

Management accounting is closely related  to the interpretation of financial data to the management & advising them on decision making.

9) Methods of procedures

In  this  study it includes all those methods & procedures which help the concern to use its resources in the most efficient & economical manner. It undertakes special cost studies & estimations , report on cost volume profit relationship under changing circumstances.

10) Offices Services

The management accountant may be required to maintain & control office services in some organisations. This function includes data processing, reporting on best use of mechanical & electronic devices ,communications e.t.c .

Characteristics of  Management  Accounting

Management Accounting is a technique of selective nature. It takes into consideration only that data from the income statement  & position  statement which is relevant & useful to the  management. Only that information is communicated to the management which is helpful  for taking decisions on various aspects of business.

1) Concerned with Future

Management accounting unlike the financial accounting deals with the forecast with the future. It helps in planning the future  because decisions are always  taken  for the future course of action.

2) Provides Data & not the Decisions

The management accountant is  taking any decisions but provides data which is  helpful to the management in decisions making. It can inform but not prescribe . It is just like map which guides the traveller where he will be if travels in one direction or another. Much depend on the efficiency & wisdom of the management for utilising the information provided by the management accountant.

3) Analysis of different Variable

Management  accounting helps in analysing the reasons as to why the profit or loss is more or less as compared to the past period. Moreover , it tries to analyse the effect of different variables on the profits & profitability of the concern.

4 ) No Set Formats For Informations

Management accounting will not provide information in a prescribed proforma like that of financial accounting . It provides the information to the management  in the form which may be more useful to the management in taking various decisions on the various aspects of the business.