G.

CHANCHAL KUMAR 1Q71E0018

TOOLS AND TECHNIQUES OF MANAGEMENT ACCOUNTING

INTRODUCTION
Management accounting or managerial accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions.

OBJECTIVES
In contrast to financial accountancy information, management accounting information is:

primarily forward-looking, instead of historical model based with a degree of abstraction to support decision making generically, instead of case based; designed and intended for use by managers within the organization, instead of being intended for use by shareholders, creditors, and public regulators; usually confidential and used by management, instead of publicly reported; computed by reference to the needs of managers, often using management information systems, instead of by reference to general financial accounting standards.

DEFINITION
One simple definition of management accounting is the provision of financial and nonfinancial decision-making information to managers. According to the Institute of Management Accountants (IMA): "Management accounting is a profession that involves partnering in management decision making, devising planning and performance management systems,and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization's strategy". Role within a corporation Consistent with other roles in today's corporation, management accountants have a dual reporting relationship. As a strategic partner and provider of decision based financial and operational information, management accountants are responsible for managing the business team and at the same time having to report relationships and responsibilities to the corporation's finance organization. The activities management accountants provide inclusive of forecasting and planning, performing variance analysis, reviewing and monitoring costs inherent in the business are ones that have dual accountability to both finance and the business team. Examples of tasks where accountability may be more meaningful to the business management team vs. the corporate finance department are the development of new product costing, operations research, business driver metrics, sales management scorecarding, and client profitability analysis. (See Financial modeling.) Conversely, the preparation of certain financial reports, reconciliations of the financial data to source systems, risk and regulatory reporting will be more useful to the corporate finance team as they are charged with aggregating certain financial information from all segments of the corporation.

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G.CHANCHAL KUMAR 1Q71E0018 In corporations that derive much of their profits from the information economy, such as banks, publishing houses, telecommunications companies and defence contractors, IT costs are a significant source of uncontrollable spending, which in size is often the greatest corporate cost after total compensation costs and property related costs. A function of management accounting in such organizations is to work closely with the IT department to provide IT cost transparency. Given the above, one widely held view of the progression of the accounting and finance career path is that financial accounting is a stepping stone to management accounting. Consistent with the notion of value creation, management accountants help drive the success of the business while strict financial accounting is more of a compliance and historical endeavor.

EXPLANATION
Management Accounting uses various tools and techniques for providing necessary and effective information to the management for performing its managerial functions. Various tools and techniques that are commonly used in Management Accounting are discussed as follows: I. Financial Statement Analysis: It is a methodical and systematic analysis and interpretation of the data as disclosed in the balance sheet and income statement with a view to extract necessary and relevant information for proving them to the management for determining liquidity, solvency, profitability, activity and the managerial performance of the enterprise. Various tools of Financial Statement Analysis such as Ratio Analysis, Comparative Financial Statement, Common-Size Statement and Trend Analysis are frequently used in Management Accounting for analysis and interpretation of financial statements. Fund Flow Analysis: It is a detailed analysis of inflows and outflows of fund (i.e., the working capital) of an enterprise during a particular accounting period. Such analysis is done by preparing a Fund Flow Statement at the end of an accounting period. The Fund Flow Statement exhibits inflows and outflows of fund from various activities of the enterprise during an accounting period. As working capital is considered as the life-blood of every business concern, efficient management of working capital is highly effective for the smooth running of all operating activities of the concern. For an effective and efficient management of the working capital of a concern, Fund Flow Analysis is frequently used as a tool of the Management Accounting. Cash Flow Analysis: It is a detailed analysis of inflows and outflows of cash and cash equivalents (i.e., cash in hand, cash at bank and short-term investments) of an enterprise during a particular accounting period. Such analysis is done by preparing a Cash Flow Statement at the end of an accounting period. The Cash Flow Statement so prepared exhibits the inflows and outflows of cash from various activities of the enterprise during an accounting period. As the movement of cash is very much significant to every business concern, an efficient management of cash is highly effective for the liquidity planning of the concern. For an effective and
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G.CHANCHAL KUMAR 1Q71E0018 efficient management of cash of a concern, Cash Flow Analysis is frequently used as a tool of Management Accounting. IV. Costing techniques: Various costing techniques such as Marginal Costing, Standard Costing and Differential Costing are frequently used as tools of Management Accounting in its process of cost control and decision-making. Budgetary control: Budgetary control involves framing of budgets, comparison of actual results with budgeted estimates, ascertainment of any deviation of actual results from budgeted estimates by computation of variances and adoption of necessary remedial measures against such deviation. It is an essential tool widely used in the Management Accounting in the process of its controlling, planning and performance evaluation of an enterprise. Statistical and operational research techniques: Various statistical and operational research techniques such as charts, graphs, index number, sampling, time series, Regression Analysis, Linear Programming, Games Theory, and Programme Evaluation and Review Technique (PERT) are frequently used as tools of Management Accounting in its process of performance evaluation and decisionmaking. Responsibility Accounting: It involves preparation of budget for various responsibility centres and assignment of specific responsibilities to the concerned individual managers for carrying out the budget directions. In the process of cost control, responsibility accounting is widely used as a tool of Management Accounting. Management Reporting: It involves preparation and submission of reports of performance of various activities of a concern to the management on regular intervals for its effective planning, controlling, performance evaluation and decision-making. Management Reporting is widely used as an essential tool in Management Accounting.

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Conclusion
So Management Accounting uses various tools and techniques for providing necessary and effective information to the management for performing its managerial functions.

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