accounting

IS 2240 - Fundamentals of Accounting & Finance
Faculty of Information Technology

University of Moratuwa
Malith Randika
MSc(USJ -Reading), B.B.Mgt.(Acc.)sp.(Kel'ya)
Learning Outcomes
End of the session, you should be able to
▪ identify the basic concepts of Management Accounting.
2
Stakeholders of Accounting Information
Internal External
3
Types of Financial Statements
General Special
Purpose Purpose
F/Ss F/Ss
4
What is Management Accounting?
Management Accounting is
one of the branches of
Information Accounting
for strategic
Internal decision-
Stakeholders
making
Special Purpose
F/S
5
What is Management Accounting? (Contd.)
Management accounting is concerned with the provision & use of
accounting information to managers within organizations to facilitate
the managers in their decision-making & management control
functions.
“Management Accounting is the process of identification, measurement,

accumulation, analysis, interpretation & communication of information used by
management to plan, evaluate and control within an entity and to assure appropriate
use of and accountability for its resources”
6
Financial Accounting Vs. Management Accounting
End users of information
MA information focuses on FA information focuses on

internal decision-makers external decision-makers
7
Financial Accounting Vs. Management Accounting (Contd.)
Criterion FA MA
Objective Maximize the shareholders’ wealth Improve the efficiency & effectiveness of
operations
Time Past Not only look at the past, but the present
& the future which affects the operation of
the company
End users of F/Ss External Internal (Directors, Managers, etc.)
Regulatory & Accounting Standards, GAAPs & Not specified. Depends on the nature of
compliance Statutory Requirements by the company & the requirement
requirements particular government
Outcome Financial Statements Detailed monthly & annual management
accounts showing results by product &
function ad hoc reports
8
What are the major tasks come under MA?
▪ Explaining production & non-production costs & how they are reported in
reports.
▪ Computing the costs of manufacturing a product or rendering a service.
▪ Determining the behaviour of costs & expenses as activity levels change.
▪ Analyzing cost-volume-profit relationships within the organization.
▪ Assisting management in profit planning & budgeting.
▪ Providing a basis for controlling costs & expenses by comparing actual
results with planned items.
▪ Accumulating & presenting relevant data for management decision-making.
9
Technical Terms
Cost object: anything which required separate measurement of cost.
Cost unit: Unit of quantity of product, service or time in relation to which

costs may be ascertained or expressed.
Cost center: A location, person or item of equipment (or group of these) for
which costs may be ascertained and used for the purpose of cost control.
A cost unit is the measurement medium, whereas a cost center refers to a

subdivision, location, department, or other institution.
In University?????
10
Technical Terms (Contd.)
Relevant cost: Costs that are specific to management’s decisions. The concept
of relevant costs eliminates unnecessary data that could complicate the decision-
making process.
Irrelevant cost: A cost, either positive or negative, that does not relate to a
situation requiring management’s decision.
Ex: Labour requirement of a software project is 72 hours. The company expects

to use 04 software developers for the job and company paid monthly salary of
Rs.150,000/- for these employees. In addition, each worker is paid with an
incentive commission of Rs.200,000/- per project. Relevant and Irrelevant cost
relating to decision of selecting the project.
11
Technical Terms (Contd.)
Opportunity cost: The cost of an alternative that must be forgone in order to

pursue a certain action. Put another way, the benefits you could have
received by taking an alternative action.
Standard cost: A production or operating cost that is carefully

predetermined. It is a target cost that should be achieved.
Sunk cost: A cost that has already been incurred and thus cannot be
recovered. Sunk costs are independent of any event that may occur in the
future.
12
Classification of Costs
Classification
Basis of
Function wise Behaviour wise
elements of cost
Direct & Indirect cost Material , labour & Fixed, variable &
others cost semi-variable cost
13
Questions??
14
Thank you.
15

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IS 2240 - Fundamentals of Accounting & Finance

Faculty of Information Technology

“Management Accounting is the process of identification, measurement,

End users of information

MA information focuses on FA information focuses on

End users of F/Ss External Internal (Directors, Managers, etc.)

Cost unit: Unit of quantity of product, service or time in relation to which

A cost unit is the measurement medium, whereas a cost center refers to a

Ex: Labour requirement of a software project is 72 hours. The company expects

Opportunity cost: The cost of an alternative that must be forgone in order to

Standard cost: A production or operating cost that is carefully

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