Define Management Accounting.

The process of preparing management reports and accounts that provide accurate and timely financial and
statistical information required by managers to make day to day and short time decisions is called
Management Accounting.

Unlike financial accounting, which produces annual reports mainly for external stakeholders, management
accounting generates monthly or weekly reports for an organization's internal audiences such as
department managers and the chief executive officer. These reports typically show the amount of available
cash, sales revenue generated, amount of orders in hand, state of accounts payable and accounts receivable,
outstanding debts, raw material and inventory, and may also include trend charts, variance analysis, and
other statistics.

Explain the role of Management Accounting in Planning and control in a bank.

A basic objective of managerial accounting is to improve the effectiveness of both the management
planning and control functions. Plans should be developed on the same information base as the
mechanisms of control. Planning depends on the same reporting and control mechanisms that make central
oversight possible and decentralized management feasible. Building the mechanism of control on one data
base (financial accounting) and the planning process on another (program analysis) places too great a
burden on the management system as the intermediary. Managerial accounting involves in the formulation
of financial estimates of future performance (the planning and budgeting processes) and, subsequently, the
analysis of actual performance in relation to those estimates (program evaluation and control).

Explain the role of Management Accounting in a bank.

OR
Management Accounting is beneficial for banking operation - comments with the
example.
1. Collection, Classification, Analysis and Presentation of Financial data
2. Systematic and reliable planning
3. Ascertainment, Reduction and Control of cost 4. Product Pricing
5. Measurement of work performance
6. Preparation of statement of cost and other necessary statement
7. Preparation of Master Plan of Development of Industry
8. Role of Financial Management in Industry 9. Forward looking
10. Efficiency Analysis
11. Helping in decision making

Management Accounting is helpful in decision making-discuss the statement.

Managerial accounting information provides data-driven input to these decisions, which can improve
decision making over the long term. Small business managers can leverage this powerful tool to help make
their business more successful by understanding how management accounting benefits common business
decision contexts.
Relevant Cost Analysis
Managerial accounting information is used by company management to determine what should be sold and
how to sell it. For example, a small business owner may be unsure where he should focus his marketing
efforts.

Activity-based Costing Techniques

Once the company has determined what products to sell, the business needs to determine to whom they
should sell the products. By using activity-based costing techniques, small business management can
determine the activities required to produce and service a product line.

Make or Buy Analysis

A primary use of managerial accounting information is to provide information used in manufacturing. By
completing a make or buy analysis, she can determine which choice is more profitable.
Utilizing the Data
Managerial accounting information provides a data-driven look at how to grow a small business.
Budgeting, financial statement projections and balanced scorecards are just a few examples of how
managerial accounting information is used to provide information to help management guide the future of
a company.

Shortcomings of traditional methods of credit analysis.

1. Past financial performance, good or bad, is not necessarily an accurate predictor of future performance.
2. Financial statements do not tell you about changes in senior management.
3. Financial statements do not tell you about the loss of major customers.
4. Financial statements do not tell you about the competitive environment in which the company operates.
5. Financial statements do not disclose the company’s future prospects, or the results of its expenditures on
Research and Development.
6. The more out-of-date a customer financial statements are, the less reliable they are as a risk management
tool.

Describe the necessity of Financial Statement Analysis.

1. Holding Of Share: Shareholders are the owners of the company. The financial statement analysis is
important as it provides meaningful information to the shareholders in taking decisions.

2. Decisions And Plans: The management of the company is responsible for taking decisions and
formulating plans and policies for the future. They, therefore, always need to evaluate its performance and
effectiveness of their action to realise the company's goal in the past. For that purpose, financial statement
analysis is important to the company's management.

3. Extension Of Credit: The creditors are the providers of loan capital to the company. Therefore they
may have to take decisions as to whether they have to extend their loans to the company and demand for
higher interest rates. The financial statement analysis provides important information to them for their
purpose.

4. Investment Decision: The prospective investors are those who have surplus capital to invest in some
profitable opportunities. Therefore, they often have to decide whether to invest their capital in the
company's share. The financial statement analysis is important to them because they can obtain useful
information for their investment decision making purpose.

Describe the Limitations of Financial Statement Analysis.

Although financial statement analysis is highly useful tools, it has limitations also. The limitations involve
the comparability of financial data between companies and the need to look beyond ratios.

Comparison of one company with another can provide valuable clues about the financial health of an
organization.

The analyst should keep in mind the lack of comparability of the data before drawing any definite
conclusion. Comparisons of key ratios with other companies and with industry average often suggest
avenues for further investigation.

Describe briefly the uses of Financial Statement Analysis.

Analysis of the statement of financial position referred to as a balance sheet analysis, reports on a
company’s assets, liabilities, and ownership equity at a given point in time.
1. A financial statement analysis provides information on the operation of the enterprise. These include
sale and the various expenses incurred during the processing state.
2. Financial statement analysis gives information about the changes in equity which helps to explain the
changes of the company’s equity throughout the reporting period.
3. Financial statement analysis provides information about cash flows which helps to prepare report on
company’s cash flow activities, particularly it operating, investing and financial activities.
Compare and Contrast between Management Accounting and Financial Accounting.
The differences between management accounting and financial accounting include:
1. Management accounting provides information to people within an organization while financial
accounting is mainly for those outside it, such as shareholders.

2. Financial accounting is required by law while management accounting is not. Specific standards and
formats may be required for statutory accounts such as in the I.A.S International Accounting Standard
within Europe.

3. Financial accounting covers the entire organization while management accounting may be concerned
with particular products or cost centers.

Contrast Format:
Fin. Acc: Financial accounts are supposed to be in accordance with a specific format by IAS so that
financial accounts of different organizations can be easily compared.
Man. Acc: No specific format is designed for management accounting systems.

Planning and control:

Fin. Acc: Financial accounting helps in making investment decision, in credit rating.
Man. Acc: Management Accounting helps management to record, plan and control activities to aid
decision-making process.

Focus:
Fin. Acc: Financial accounting focuses on history.
Man. Acc: Management accounting focuses on future.

Users:
Fin. Acc: Financial accounting reports are primarily used by external users, such as shareholders, bank and
creditors.
Man. Acc: Management accounting reports are exclusively used by internal user’s viz. managers and
employees.

External Vs. Internal:

Fin. Acc: A financial accounting system produces information that is used by parties external to the
organization, such as shareholders, bank and creditors.
Man. Acc: A management accounting system produces information that is used within an organization, by
managers and employees.