Introduction To Management Accounting: Asst Prof. Jonlen Desa

INTRODUCTION TO
MANAGEMENT ACCOUNTING
ASST PROF. JONLEN DESA

MANAGEMENT ACCOUNTING
 Management accounting is the process of identification,
measurement, preparation, analyze, interpretation and
communication of financial information used by
management to take various decisions for the
enterprise.
 Management accounting provides necessary financial
information to the managers and it is an aid to help
managers take proper and effective decisions.
 It provides information to all stakeholders of a
company.
 Management accounting has a wide scope, which includes cost
accounting, financial accounting, budgetary control, inventory
control etc.
 Management accounting is a system of accounting that assists
management in taking decisions.
 Thus management accounting is an important branch of

accounts that provides necessary information to the decision
makers to make decisions for the company on behalf of its
owners.
DEFINITION
 “ Management Accounting is concerned with accounting
information that is useful to management.”- Robert Anthony
 “ Management Accounting is concerned with supplying financial

data useful to management at all levels in managing and
administering an enterprise.”- W.B. Meferland
MANAGERIAL DECISIONS
 Make or Buy
 Dropping or Adding Product Line
 Purchase or Lease
 Selling Agents or Sales Force
 Product Mix
 Price Mix
 Promotion Mix
SCOPE
 Financial Accounting
 Cost Accounting
 Budgetary Control
 Management Information System
 Capital Budgeting
 Statistical Techniques
 Data interpretation
 Reporting/Communication
EVOLUTION
 The main aim of financial accounting is to know about the

profitability and financial position of the firm and also to
communicate the same to its stakeholders.
 Financial accounting conveys meaningful information to the
outsiders, but it fails to communicate valuable information to
the management, in the absence of which, decision making
becomes difficult.
 With the evolution of joint stock companies, there is
separation of ownership and management.
 Hence management accounting evolved to help managers take
decisions for the benefit of the company, based on the
information provided by financial and cost accounts.
OBJECTIVES / FUNCTIONS
 Planning and Policy Formulation

 Helps in decision making
 Helpful in reporting
 Controlling
 Assists in motivating
LIMITATIONS
 Expensive
 Delays in Decisions
 Dependency on data
 Inaccuracy of information
 Evolutionary stage
FINANCIAL ACCOUNTING VS MANAGEMENT ACCOUNTING
FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING
 It is the art of recording,  It is a system of accounts that

classifying & summarizing helps management in effective
financial transactions decision making.
 It provides information to  It provides information to internal
external parties. parties.
 Financial accounts are  Management accounts are
compulsory. optional.
 Financial accounts precedes  Management accounts succeeds
management accounts. financial accounts.
 Its main objective is to provide  Its main objective is to help firms
information about the take correct decisions for the
profitability and financial benefit of the firm.
position of the firm
FINANCIAL ACCOUNTING MANAGEMNT ACCOUNTING
 Financial accounts is concerned  Management accounts is

with historical data. concerned with future plans
and strategies.
 Financial accounts has to  Management accounts is not
follow GAAP. required to follow GAAP.
 It lacks flexibility  There is more flexibility.
 All financial statements are to  Reports and statements need
be published and audited. not be published and audited.
 Financial accounting is static in  Management accounting is
nature. dynamic in nature.
 Only monetary transactions are  Both monetary and non-
recorded monetary events are recorded.
COST ACCOUNTING VS MANAGEMENT ACCOUNTING
COST ACCOUNTING MANAGEMENT ACCOUNTING
 Cost accounting does not use  Management accounting uses

techniques of management techniques of cost accounting.
accounting.
 The primary objective of cost  The primary objective of
accounting is to determine the management accounting is to take
cost of producing a product. effective decisions for the firm.
 Certain principles and  No such principles are required to
procedures are to be followed be followed in the case of
in cost accounting. management accounting.
 Only quantitative aspects are  Management accounting uses
recorded in cost accounting. both quantitative and qualitative
information.
COST ACCOUNTING MANAGEMENT ACCOUNTING
 Cost accounting information  Management accounting

is useful to both internal and information is useful only to
external parties. internal parties.
MANAGEMENT ACCOUNTANT
 Management accountant is a person who is entrusted
with management accounting.
 He is also known as “Controller of accounts”.
 He plays a significant role in decision making in an

organization.
 He is responsible for installation, development & efficient
functioning of the management accounting system.
 He plays an important role in gathering, compiling,
reporting and interpreting accounting information.
 He occupies a significant position in an organization.
ROLE OF MANAGEMENT ACCOUNTANT
 The management accountant provides useful

information for decision making.
 He collects different data from various departments.
 He helps measure actual performance with the budget.
 He can help increase the efficiency of the business
 He can help management chalk out future plan of

action on the basis of past results.
 He can also render valuable assistance in investment
opportunities, expansion activities, working capital
requirement, corporate planning etc.
RESPONSIBILITIES & DUTIES
 The installation & interpretation of all accounting records
of the company.
 The preparation and interpretation of the financial
statements of the company.
 The compilation of production costs.
 The taking and costing of all physical inventories.
 Continuous audit of all accounts and records of the

company wherever located.
 The preparation and filing of tax returns.
 The maintenance of records of all contracts and leases.

FUNCTIONS OF MANAGEMENT ACCOUNTANT
 To establish, coordinate and administer an adequate plan
for the control of operations.
 To compare performance with standards and to report
and interpret its results to all levels of management.
 To administer tax policies and procedures.
 To supervise preparation of reports to Government

agencies.
 To assure protection of assets of the company through
internal control or insurance coverage.
 To provide regular information and updates to the
management on various issues, so as to help the
management take timely and correct decisions.
MANAGEMENT ACCOUNTING :
TOOLS AND TECHNIQUES
A. TOOLS BASED ON C. TOOLS BASED ON

BUDGETING AND
FINANCIAL ACCOUNTING FORECATING
MANAGEMENT
ACCOUNTING:
TOOLS &
TECHNIQUES
B. TOOLS BASED ON D. TOOLS BASED ON

COST ACCOUNTING MATHEMATICS
A. TOOLS BASED ON FINANCIAL ACCOUNTING
Common Size
Statement
Comparative
Statement
Ratio
Analysis
Fund Flow
Statement
Cash flow
Statement
B. TOOLS BASED ON COST ACCOUNTING
Cost Volume Profit Analysis
Standard Costing
Contribution
Break-Even Point
Marginal Costing
Differential Costing
C. TOOLS BASED ON BUDGETING AND FORECASTING
Business
Forecasting
Project
Evaluation
Budgeting
( PERT &
CPM)
D. TOOLS BASED ON MATHEMATICS
Correlation Analysis
Regression Analysis
Time Series Analysis
Trend Analysis
Operations Research
Simulation Theory

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INTRODUCTION TO

ASST PROF. JONLEN DESA

 Thus management accounting is an important branch of

 “ Management Accounting is concerned with supplying financial

 Selling Agents or Sales Force

 Management Information System

 The main aim of financial accounting is to know about the

 Planning and Policy Formulation

FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING

 It is the art of recording,  It is a system of accounts that

 Financial accounts is concerned  Management accounts is

COST ACCOUNTING MANAGEMENT ACCOUNTING

 Cost accounting does not use  Management accounting uses

 Cost accounting information  Management accounting

 He plays a significant role in decision making in an

 The management accountant provides useful

 He helps measure actual performance with the budget.

 He can help increase the efficiency of the business

 He can help management chalk out future plan of

 The taking and costing of all physical inventories.

 Continuous audit of all accounts and records of the

 The maintenance of records of all contracts and leases.

 To supervise preparation of reports to Government

A. TOOLS BASED ON C. TOOLS BASED ON

B. TOOLS BASED ON D. TOOLS BASED ON

Cost Volume Profit Analysis

Time Series Analysis

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