CHAPTER 1 By

INTRODUCTION Suku Thomas Samuel

 BRANCHES OF ACCOUNTING

Management Accounting
Financial Accounting Cost Accounting • Analyzing account information to
• Deals with preparing books • Study of cost & methods to take meaningful business
decisions
of Accounts reduce them • Management Accountant
• Chartered Accountant • Cost Accountant
 ACCOUNTING PROCESS
The systematic process of Recording, Classifying and
Summarizing transactions in a business

Summarizin
Recording
• Ledgers g
• Journals • Final
Accounts
Transaction Classifying
SUMMARIZING OF TRANSACTIONS
Helps to know the net outcome of all transactions
Reveals profitability and financial position

Trading Profit & Loss Balance

Ledgers Trial Balance
Account account Sheet

Summary of all ledgers

in a business
Gross Profit Net Profit • Financial
Position
• Assets &
• Income Statement of a firm
Liabilities
• Profit Position of a firm
 MANAGEMENT ACCOUNTING
The branch of accounting that provides necessary information
to the management for discharging its function of Planning,
Organizing, Directing & Controlling.
Definition
“ Management Accounting is concerned with accounting
information that is useful to the management ”
- Robert N Anthony

“ The essential aim of management accounting should be to

assist the management to take decisions ”
- Brown and Howard
 MANAGEMENT ACCOUNTING
Definition
“Management Accounting is an integral part of management
concerned with identifying, presenting and interpreting
information used for:
i. Formulating strategy
ii. Planning and controlling activities
iii. Decision taking
iv. Optimizing the use of resources
v. Disclosure to share holders
vi. Safeguarding assets”
- CIMA
 SCOPE OF MANAGEMENT
ACCOUNTING
1. Analysis and interpretation of accounts:
Transactions are analysed to identify trends.
2. Reporting: Presenting information in meaningful
manner to various stakeholders.
3. Internal audit and control: Monitor functioning
of various departments.
4. Tax planning: Devising strategies to minimise tax
paid.
5. Management Information System: Creating
repository of information for future reference.
FUNCTIONS OF MANAGEMENT
ACCOUNTING
i. Collects and provides data.
ii. Analyses and interprets data.
iii.Communication of information.
iv.Helps in organizational planning.
v. Facilitates control.
vi.Coordinating activities among the
departments.
 RELATIONSHIP OF MANAGEMENT
ACCOUNTING WITH OTHER BRANCHES OF
ACCOUNTING
TRANSACTIONS

DECISIONS
FINANCIAL A/C

COST A/C MANAGEMENT A/C

PROCESS OF MANAGEMENT
ACCOUNTING
Collecting the data
Analyzing the data
Communication
Financial
Accounting
Cost Accounting Management
accounting tools Interpreting the
information in a
meaningful
language
 MANAGEMENT ACCOUNTING VS. COST
ACCOUNTING VS. FINANCIAL ACCOUNTING
Financial A/c Management A/c Cost A/c
• Bookkeeping and final Helps in decision making Study of cost and
accounts preparation controlling cost
• Serves internal and Serves internal and Serves internal users
external users external users
• Mandatory No legal binding Optional
• Time bound. Quick in process Slow and time consuming
• Quantitative Based on qualitative and Based on qualitative and
information. quantitative information quantitative information
related to only cost
• Based on set standards. Not set standards Certain techniques based
on standard guidelines.
MANAGEMENT ACCOUNTING -
LIMITATIONS
•Based on historical accounting information
•Uncertain future
•Individual centric
•Required qualified professional
•Evolving subject
•Psychological resistance