Friday, August 15, 2014

Management Accounting - Meaning, Objectives, Characteristics and Scope

Management Accounting: Meaning and Definitions:

The term management accounting refers to accounting for the management. Management accounting provides necessary information to assist the management in the creation of policy and in the day-to-day operations. It enables the management to discharge all its functions i.e. planning, organization, staffing, direction and control efficiently with the help of accounting information.

In the words of R.N. Anthony “Management accounting is concerned with accounting information that is useful to management”.

Anglo American Council of Productivity defines management accounting as “Management accounting is the presentation of accounting information is such a way as to assist management in the creation of policy and in the day-to-day operations of an undertaking”.

According to T.G. Rose “Management accounting is the adaptation and analysis of accounting information, and its diagnosis and explanation in such a way as to assist management”.

From the above explanations, it is clear that management accounting is that form of accounting which enables a business to be conducted more efficiently.

Characteristics of Management Accounting:

1. Management accounting enables future forecasting.
2. It is selective in nature.
3. Supplies Data, Not Decisions.
4. Integrated system.
5. It is a service functions which provides information to the management for formulating policies.
6. Established financial accounting rules are not followed in Management Accounting.
7. Management Accounting emphasizes, specially, on cause and effect relationship.
8. Emphasis is placed on nature of Cost Elements.
9. Management accounting is a developing subject.
10. Potentiality of development as a profession.

Objectives of Management Accounting:
The objectives of management accounting are:
Ø  To assist the management in promoting efficiency. Efficiency includes best possible services to the customers, investors and employees.

Ø  To prepare budget covering all functions of a business (i.e. production, sales, research and finance).

Ø  To analysis monetary and non-monetary transactions.

Ø  To compare the actual performance with plan for identifying deviations and their causes.

Ø  To interpret financial statements to enable the management to formulate future policies.

Ø  To submit to the management at frequent intervals operating statements and short-term financial statements.

Ø  To arrange for the systematic allocation of responsibilities.

Ø  To provide a suitable organization for discharging the responsibilities. In short, the objective of management accounting is to help the management in making decisions and implementing them efficiently.

Scope of Management Accounting
The field of management accounting is very wide. The main purpose of management accounting is to provide information to the management to perform its functions of planning directing and controlling. Management accounting includes various areas of specialization to render effective service to the management.
a)      Financial Accounting: Financial Accounting deals with financial aspects by preparation of Profit and Loss Account and Balance Sheet. Management accounting rearranges and uses the financial statements. Therefore it is closely related and connected with financial accounting.
b)      Cost Accounting: Cost accounting is an essential part of management accounting. Cost accounting, through its various techniques, reveals efficiency of various divisions, departments and products. Management accounting makes use of all this data by focusing it towards managerial decisions.
c)       Budgeting and Forecasting: Budgeting is setting targets by estimating expenditure and revenue for a given period. Forecasting is prediction of what will happen as a result of a given set of circumstances. Targets are fixed for various departments and responsibility is pinpointed for achieving the targets. Actual results are compared with preset targets and performance is evaluated.
d)      Inventory Control: This includes, planning, coordinating and control of inventory from the time of acquisition to the stage of disposal. This is done through various techniques of inventory control like stock levels, ABC and VED analysis physical stock verification, etc.
e)      Statistical Analysis: In order to make the information more useful statistical tools are applied. These tools include charts, graphs, diagrams index numbers, etc. For the purpose of forecasting, other tools such as time series regression analysis and sampling techniques are used.
f)       Analysis of Data: Financial statements are analysed and compared with past statements, compared with those of other firms and with standards set. The analysis and interpretation results in drawing reports and presentation to the management.
g)      Internal Audit: Internal audit helps the management in fixing individual responsibility for internal control.
h)      Tax Accounting: Tax liability is ascertained from income statements. Knowledge of tax provisions helps the management in meeting the tax liabilities and complying with other legislations like Sales tax, Companies Act and MRTP Act.
i)        Methods and Procedures: In includes keeping of efficient system for data processing and effective reporting of required data in time.