INTRODUCTION TO

MANAGEMENT ACCOUNTING
MANAGEMENT ACCOUNTING
BASICS

Management accounting is a field of

accounting that provides economic and
financial information for managers and other
internal users for decision making.
DEFINITION

 “Accounting in relation to management function”

 “Presentation of the accounting information in such a way so as
to assist the management in creation of policy and the day to
day operation of an undertaking”
 Serves the operational need of the managers by redesigning the
accounting systems
 “Management” here means authority and responsibility of
operations
 “Accounting” here is not just book-keeping but an enterprise
wide macro economic approach as it draws from economic,
statistics, financial accounting, law, psychology….its therefore
interdisciplinary
DEFINITION

 It includes all those services by which the accounting

department can assist the top management and other
departments in the formation of policy, control of execution and
appreciation of effectiveness. This definition points out that
management is entrusted with the primary task of planning,
execution and control of the operating activities of an
enterprise.
NEED FOR MANAGEMENT
ACCOUNTING INFORMATION
 This information is used in three managerial functions:
 PLANNING

 IMPLEMENTATION

 CONTROL
PLANNING

 It is the process of deciding what action should be taken in the

future.
 An important form of planning is budgeting.
 Budgeting is the process of planning the overall activities of an
organization for a specified period of time, generally a year.
 Accounting information is useful in analyzing the consequences
of each alternative in the decision-making process.
IMPLEMENTATION

 It is specific actions planned in advance to fulfill the budgets.

 A key managerial responsibility is to change previous plans
appropriately to adjust to new conditions.
 It requires supervision on the part of the managers.
CONTROL

 It is a process to ensure that employees perform properly.

 Accounting information is used in the control process as a means
for communication, motivation, getting attention and for
appraisal.
 Controlling also ensures remedial action.
MANAGEMENT FUNCTIONS
REVIEW

Pla &
nn ct in g
ing Di re at i on
en t
Decision p lem
Making I
m
Controlling

Page 7
 SCOPE OF MANAGEMENT
ACCOUNTING

 The Scope of Management accounting is very wide and broad based. It

Includes all information, which is provided to the management for
financial analysis and interpretation of the business operation.
 It includes Financial Accounting, Cost Accounting, Financial
Management, Financial Statement Analysis, Interpretation of Data,
Management Reporting, Quantitative techniques, Inflation
Accounting, Audit, taxation, Budgetary control etc.
FINANCIAL ACCOUNTING

 Financial accounting though provides historical information but

is very planning and financial forecasting. It is an essential
perquisite of any discussion of management accounting.
Financial statements contain enough  information that is used
by management for decision making. 
COST ACCOUNTING

 cost accounting provides various techniques for determining

cost of manufacturing products of cost of providing service. It
uses financial data for finding out cost of various job, Product or
processes. Business executives depend heavily on accounting
information in general and on cost information in particular
because any activity of an organisation can be described by its
cost. 
FINANCIAL MANAGEMENT

 Financial management is concerned with the planning and

controlling of the financial resources of the firm. It deals with the
raising funds and their effective utilization. Its main aim is to use
the fund in such a way that the earning of the firm is maximized.
today finance has become the life blood of any business
concerned.
FINANCIAL STATEMENT
ANALYSIS
 The Various parties concerned with the financial statements
may need information, which can be obtained by financial
statement analysis and developing certain trends and ratios. A
person can gain meaningful insights and conclusions about the
firm with the help of analysis and Interpretation of the
information contained in financial statements. 
INTERPRETATION OF DATA

 The Work of Interpretation of financial data is done by the

management accountant. He Interprets various financial
statements to the management. This statements may be
studied in comparison to statements of earlier periods or in
comparison with the statements of similar other concerns. The
significance of these reports is explained to the management in
a simple language.
MANAGEMENT REPORTING

 Clear Informative, Timely reports are essential management

tools in reaching decisions that make the best use of firm's
resources. Thus, one of the basic responsibility of management
accounting is to keep the management well informed about the
operations of the business.
QUANTITATIVE TECHNIQUES

 Modern managers believe that the financial and economic data

available for managerial decisions can be more useful when with
more sophisticated analysis and evaluation techniques. This
Techniques such a time series, regression analysis and sampling
techniques are commonly used for this purpose.
INFLATION ACCOUNTING

 Inflation accounting attempts to identify certain characteristics

of accounting that tend the reporting of financial results during
the period of rapidly changing prices. It devices and implements
appropriate methods to analysis and interpret the Inflation on
the Financial Information.  
OBJECTIVES
MANAGERIAL ACCOUNTING
BASICS
The activities that are part of managerial
accounting are as follows:
1 Explaining manufacturing and non-
manufacturing costs and how they are reported
in the financial statements.
2 Computing the cost of rendering a service or
manufacturing a product.
3 Determining the behavior of costs and expenses
as activity levels change and analyzing cost-
volume-profit relationships within a company.
MANAGERIAL ACCOUNTING
BASICS
The activities that are part of managerial accounting are as
follows:
4 Assisting management in profit planning and formalizing the
plans in the form of budgets.
5 Providing a basis for controlling costs and expenses by
comparing actual results with planned objectives and standard
costs.
6 Accumulating and using relevant data for management decision
making.
NATURE

 The task of management accounting involves furnishing accounting

information to the management, which may base its decisions on it.
 It draws the knowledge from several other disciplines like costing, statistics,
mathematics, financial accounting, etc. Other fields of study, which can be
covered by management accounting, are political science, sociology,
psychology, management, economics, statistics, law, etc
 The philosophy of cost benefit analysis is the core guide of this discipline.
 It is, therefore, an inexact science, which uses its own conventions rather than
standardized principles. The facts to be studied here can be interpreted in
different ways and the precision of the inferences depends upon the skill,
judgement and common sense of different management accountants.
 The data is operative in nature catering to the operational needs of a firm. It
details events, monetary and non-monetary. The nature of data, the form of
presentation and its duration are mainly determined by managerial needs.
FUNCTIONS

 Provide data
 Modifies data
 Analyses and Interpret data
 Facilitates control
 Uses qualitative information also
 Serves as a means of communicating
DIFFERENCES BETWEEN FINANCIAL
AND MANAGERIAL ACCOUNTING
FINANCIAL MANAGERIAL
ACCOUNTING ACCOUNTING
Primary Users of Reports
External users, who are Internal users, who are officers,
stockholders, creditors, and department heads, managers,
regulatory agencies. and supervisors in the
company.
Types and Frequency of Reports
Classified financial statements. Internal reports
Issued quarterly and annually. Issued as frequently as needed.
Purpose of Reports
To provide general-purpose To provide special-purpose
information for all users. information for a particular
user for a specific decision. Illustration 1-1a
DIFFERENCES BETWEEN FINANCIAL
AND MANAGERIAL ACCOUNTING
FINANCIAL MANAGERIAL
ACCOUNTING ACCOUNTING
Content of Reports
Pertains to entity as a whole Pertains to subunits of the
and is highly aggregated entity and may be very
(condensed). detailed.
Limited to double-entry May extend beyond double-
accounting system and cost entry accounting system to
data. any type of relevant data.
Reporting standard is generally Reporting standard is relevance
accepted accounting to the decision to be made.
principles.
Verification Process
Annual independent audit by No independent audits.
certified public accountant. Illustration 1-1b
 DIFFERENCE BETWEEN FINANCIAL
AND MANAGEMENT ACCOUNTING
Dimension Management Accounting Financial Accounting

Structure Varies according to use of Unified structure

information
Sources of principles Whatever is useful to GAAPs
management
Need Optional Statutory obligation

Time-orientation Historical and estimates of Historical

the future
Report entity Responsibility centres Overall organisation
Purpose A means to the end of External reporting
assisting management
Users Relatively small group Relatively large group
Information content Monetary and non- Primarily monetary
monetary
 ....CONT.

Management accounting Financial Accounting

Dimension
Report frequency Varies with purpose; Quarterly and Annual
monthly and weekly
Report timeliness Reports issued promptly Delay of weeks or even
Liability potential after end of period months
covered
DIFFERENCE BETWEEN COST
AND MANAGEMENT
ACCOUNTING
Basis of Difference Management Accounting Cost Accounting
Meaning The accounting in which the both The recording, classifying and
summarising of cost data of an
financial and non-financial organisation is known as cost
information are provided to accounting.
managers is known as
Management Accounting.
Information type Quantitative and Qualitative Quantitative
Scope Impact and effect aspect of costs. Concerned with
ascertainment, allocation,
distribution and
accounting aspects of
cost.
Objective Providing information to Ascertainment of cost of
managers to set goals and production.
forecast strategies.
Specific procedure No Yes
 ....CONT.

Basis of Difference Management Accounting Cost Accounting

Planning Short and Long range Short range
Interdependency Cannot be installed without cost Can be installed without
accounting. management accounting.

Recording It gives more stress on the Records past and present

analysis of future projections. data
ROLE OF A MANAGEMENT
ACCOUNTANT