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management accounting

management accounting

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Published by Janu Vrk
helps to understand management accounting in a better way.
helps to understand management accounting in a better way.

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Published by: Janu Vrk on Oct 18, 2012
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MANAGEMENT ACCOUNTING: NATURE AND SCOPE
Objective:
The present lesson explains the meaning, nature, scope and limitationsof accounting. Further, it discusses the activities covered undermanagement accounting and its difference with financial accounting.
LESSON STRUCTURE
 1.1 Introduction1.2 Definitions of Management Accounting1.3 Nature of Management Accounting1.4 Functions of Management Accounting1.5 Scope of Management Accounting1.6 The Management Accountant1.7 Management Accounting and Financial Accounting1.8 Cost Accounting and Management Accounting1.9 Limitations of Management Accounting1.10 Self-Test Questions1.11 Suggested Readings
1.1 INTRODUCTION
 Management accounting can be viewed as Management-oriented Accounting.Basically it is the study of managerial aspect of financial accounting,"accounting in relation to management function". It shows how the accountingfunction can be re-oriented so as to fit it within the framework of managementactivity. The primary task of management accounting is, therefore, toredesign the entire accounting system so that it may serve the operational
COURSE: MANAGEMENT ACCOUNTING
COURSE CODE: MC-105
 
AUTHOR: Dr. N. S. MALIK
 
LESSON
:
01 VETTER: Prof. M S Turan
 
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needs of the firm. If furnishes definite accounting information, past, present orfuture, which may be used as a basis for management action. The financialdata are so devised and systematically development that they become aunique tool for management decision.
1.2 DEFINITIONS OF MANAGEMENT ACCOUNTING
The term “Management Accounting”, observe, Broad and Carmichael, coversall those services by which the accounting department can assist the topmanagement and other departments in the formation of policy, control ofexecution and appreciation of effectiveness. This definition points out thatmanagement is entrusted with the primary task of planning, execution andcontrol of the operating activities of an enterprise. It constantly needsaccounting information on which to base its decision. A decision based ondata is usually correct and the risk of erring is minimized. The position of themanagement in respect of its functions can be compared to that of an armygeneral who wants to wage a successful battle. A general can hardly fightsuccessfully unless he gets full information about the surrounding situationand the extent of effectiveness of each of his battalions and, to the extendpossible, even the enemy's intentions. Like a general a successfulmanagement too strives to outstrip other competitors in the field bystreamlining its operating efficiency. It needs a thorough knowledge of thesituation and the circumstances in which the firm operates. Such knowledgecan only be gained through the processed financial data rendered by theaccounting department on the basis of which it can take policy decisionregarding execution, control, etc. It is here that the role of managementaccounting comes in. It supplies all sorts of accounting information in the
 
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form of such statements as may be needed by the management. Therefore,management accounting is concerned with the accumulation, classificationand interpretation of information that assists individual executives to fulfillorganizational objectives.The Report of the Anglo-American Council of Productivity (1950) has alsogiven a definition of management accounting, which has been widelyaccepted. According to it, "Management accounting is the presentation ofaccounting information in such a way as to assist the management in creationof policy and the day to day operation of an undertaking". The reasoningadded to this statement was, "the technique of accounting is of extremeimportance because it works in the most nearly universal medium availablefor the expression of facts, so that facts of great diversity can be representedin the same picture. It is not the production of these pictures that is a functionof management but the use of them." An analysis of the above definitionshows that management needs information for better decision-making andeffectiveness. The collection and presentation of such information comewithin the area of management accounting. Thus, accounting informationshould be recorded and presented in the form of reports at such frequentintervals, as the management may want. These reports present a systematicreview of past events as well as an analytical survey of current economictrends. Such reports are mainly suggestive in approach and the datacontained in them are quite up to date. The accounting data so supplied thusprovide the informational basis of action. The quality of information sosupplied depends upon its usefulness to management in decision-making.The usual approach is that, first of all, a thorough analysis of the whole

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