MANAGEMENT ACCOUNTING

Management Accounting is a new approach to accounting. The term Management Accounting

is composed of two words Management and Accounting. It refers to Accounting for the
Management. Management Accounting is a modern tool to management. Management Accounting
provides the techniques for interpretation of accounting data. Here, accounting should serve the needs of
management. Management is concerned with decision-making. So, the role of management
accounting is to facilitate the process of decision-making by the management.
Managers in all types of organizations need information about business activities to plan,
accurately, for the future and make decisions for achieving the goals of the enterprise.
Uncertainty is the characteristic of the decision-making process. Uncertainty cannot be
eliminated, altogether, but can be reduced.The function of Management Accounting is to reduce the
uncertainty and help the management in the decision making process.
Management Accounting is concerned with accounting information, which is useful to the
management.
Robert N. Anthony
Management Accounting is concerned with the efficient management of a business through
the presentation to management of such information that will facilitate efficient planning and
control.
Brown and Howard
Any form of Accounting which enables a business to be conducted more efficiently can be
regarded as Management Accounting
The Institute of Chartered Accountants of England and Wales
Management Accounting in the following manner:
Management Accounting is an integral part of management concerned with identifying,
presenting and interpreting information for:
(1) formulating strategy
(2) planning and controlling activities
(3) decision taking
(4) optimizing the use of resources
(5) disclosure to shareholders and others, external to the entity
(6) disclosure to employees
(7) safeguarding assets.
ROLE OF MANAGEMENT ACCOUNTING IN MANAGEMENT PROCESS
An enterprise would operate, successfully, if it directs all its resources and efforts to accomplish
its specified objective in a planner manner, rather than reacting to events.
Organisation has to be both efficient and effective. Organisation is effective when the planned
objective is achieved. However, the firm is efficient only when the objective is achieved, with
minimum cost and resources, both in physical and monetary terms. The role of Management
Accounting is significant in making the firm both efficient and effective.
Management Accounting has brought out clear shift in the objective of accounting. From
mere recording of transactions, the emphasis is on analyzing and interpreting to help the
management to secure better results. In this way, Management Accounting eliminates intuition,
which is not at all dependable, from the field of business management to the cause and effect
approach.
It is well known the basic functions of management are:
(1) Planning,
(2) Organising,
(3) Controlling and

(4) Decision-making
Management accounting plays a vital role in the managerial functions performed by the
managers.
CHARACTERISTIC

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of management accounting

Management accounting is concerned with future

Management accounting is of selective nature
Management accounting stresses on cause and effect relationship
Management accounting does not flow set rules and formats like financial accounting
Management accounting provides data, not decisions
It is highly sensitive to management needs
Management accounting is an integrated system.

Scope of Management accounting

1General accounting
Cost accounting
Budgeting and forecasting
Cost control procedures
Cost and statistics
Tax accounting
Methods and procedures design
Reporting
Internal auditing
Office service
OBJECTIVES OF MANAGEMENT ACCOUNTING
1- Helpful in planning and formulating policy
2- Helpful in organizing
3- Motivating of employees
4- Object of coordination
5- Reporting to management
6- helpful in decision making
7- helpful in controlling performance
8- helpful in interpretation of financial information
9- helpful in tax administration
10to help in fulfilling legal requirements

LIMITATIONS OF MANAGEMENT ACCOUNTING

1.
2.
3.
4.
5.
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Accuracy is not Ensured

A Tool in the Hands of Management
Strength and Weakness
Costly Affair
Lack of Knowledge and Understanding
Persistence on Intuitive Decision-making
Psychological Resistance
Evolutionary Stage

techniques of management
In previous educational contents, we've explained functions and advantages of management accounting. Both contents
were published to tell the importance of this branch of accounting. We want to take this conversation a step further today,
and discuss tools and techniques of management accounting that can be helpful to management for providing best
information. Take a look at some of best tools and techniques of management accounting outlined below:
1 : Analysis of Financial Statements
Analysis of financial statements is the main tool of management accounting. In this tool, we collect four financial
statement, one is profit and loss account, second is balance sheet, third is cash flow statement and fourth and last is fund
flow statement. After this, we calculate more than 30 ratios and also analyze the financial statement by financial analysis,
fund flow analysis and cash flow analysis. Main aims of analysis of financial statements are following :
1. Profitability - its ability to earn income and sustain growth in both short-term and long-term. A company's degree of
profitability is usually based on the income statement, which reports on the company's results of operations;
2. Solvency - its ability to pay its obligation to creditors and other third parties in the long-term;
3. Liquidity - its ability to maintain positive cash flow, while satisfying immediate obligations;
Both 2 and 3 are based on the company's balance sheet, which indicates the financial condition of a business as of a
given point in time.
4. Stability- the firm's ability to remain in business in the long run, without having to sustain significant losses in the
conduct of its business. Assessing a company's stability requires the use of both the income statement and the balance
sheet, as well as other financial and non-financial indicators.
2 : Budgetary Control
This is that tool of management accounting in which we make budgets for planning and control of fund. All budgets are
made with past historical accounting data and future expectations. After this budgeted data is compared with actual
recorded accounting data and performance is calculated on the basis of deviation between actual and expected
performance.
3 : Decision Accounting
There are lots of decision which businessman has to take on the basis of tools of management accounting. One of
management accounting tool is decision accounting. It is helpful to take main decision which we can explain following
ways :
a) To Buy or to construct any fixed asset
b) Do's or Dont's to do any business activity
c) To choose best alternative
d) Calculation the price of product

4 : Throughput accounting
Throughput Accounting (TA) is a dynamic, integrated, principle-based, and comprehensive management accounting's
tool that provides managers with decision support information for enterprise optimization. Actually this is the extension
of decision accounting. Throughput accounting is relatively new in management accounting. It is an approach that

identifies factors that limit an organization from reaching its goal, and then focuses on simple measures that drive
behavior in key areas towards reaching organizational goals.

5 : MIS

We MIS tool, management accountant provides information needed to manage organizations effectively
. If we have to understand MIS, we need to understand ERP, SCM, CRM, DSS and other computer techniques for
providing information with effective ways.
6 : Financial Policy
Financial policy is that tool of management accounting which is needed to make good structure of capital mix We decide
the proportion of share capital and loans in capital structure. Financial and operating leverages are also its sub-tools.
7-Working Capital Management
With this tool of management accounting, we manage short term assets and short term liabilities. All cash
management, debtor management and inventory management will include in working capital management. We make also
working capital cycle for knowing the firm's ability to convert its resources into cash. If there is low time for conversion of
raw material into sales and then cash from debtor, it is good indication.