management accounting vs other accountings

8/10/2019 Management Accounting vs Other Accountings

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1. Nature and Scope of Management Accounting

What is the purpose of accounting ?

Accounting is the language of business to

communicate the results. The concepts and

conventions are its grammar.

Communicating the results means providing the

information .

Information is to be provided to the people who areinterested in the affairs of the business

Internal Users of Information : Management

External Users of Information


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Accounting is a language: a language that

provides information about the financial positionof an organization. When you study accounting

you are essentially learning this specialized

language. By learning this language you can

communicate and understand the financialoperations of any and all types of organizations.


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U can classify the accounting on the basis of type

of information required and purpose of

information required.

1. Financial Accounting

2. Cost Accounting

3. Management Accounting


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Financial Accounting :

Reporting of the financial position and performance

of a firm through financial statements issued toexternal users on a periodic basis.

Financial Accounting is concerned with recording

business transactions in the books of accounts forthe purpose of presenting final accounts.

The art of recording classifying and summarizing ina significant manner and in terms of money,

transactions and events which are in part at least ,

of a financial character and interpreting the results

thereof Profit and Loss Account and Balance Sheet main


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Cost Accounting:

Branch of accounting.

Object is ascertain the cost of product or service.

A costis the value of money that has been used up

to produce something, and hence is not available foruse anymore.

Uses different techniques to find cost

Helps management for decision making ( cost

control)

Costing: is the techniques and process used for

ascertaining costs ( CIMA) Chartered Institute of

Management Accounting ( UK)


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Management Accounting:

Modern concept in the filed of accounting. Used for planning , control and Decision making.

ICA England any form of accounting which enables

a business to be conducted more efficiently may be

regarded as Management Accounting.

ICAWI a system of collection and presentation

of relevant economic information relating to an

enterprise for planning, controlling and decision

making


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Relationship Between Management, Cost and

Financial Accounting

All are closely linked .

Management accounting makes use of both cost

and financial accounting.

Management accountant is known as controller/Finance Controller ( US)

he analyses and interprets the accounting

information and meets the informational needs of

management at different level


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Limitations of Financial Accounting:

1. Results of entire business is shown not of individualdepartments, products.

2. It is based on the historical data

3. No performance appraisal for material and labour usage

by developing standards

4. No proper classification of costs like variable and fixed

5. Inadequate information for pricing.


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Characteristics or Nature of MA

1. Useful for decision making

2. Information is derived from Cost and Financial

Accounting.

3.Internal Use of information

4. Optional

5. Concerned with future: Decision-making

6. Flexibility in presenting the information :

depending on the skill s of the managementaccountant.


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Scope of Management Accounting:

Wide scope, includes cost and financial accounting

Also include internal control, internal audit, tax etc.1. Derives information from financial accounting for the

future planning and decision making.

2. Makes use of different costing techniques, CVP,

PVR, BEP, Std Costing etc.3. Budgeting and Forecasting for control

4. Tax accounting for tax planning.

5. Reporting to the management.6. Internal control and internal audit for checking

loopholes.

7. Financial and Interpretation:


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Functions / Objectives of Management

Accounting:

1. Developing Strategies:Information provided by MA helps for developing

short term and long term strategies through different

techniques of accounting.

2. Co ordination in in business activities:3. Helps to control activities through controlling

techniques

4. Communication of reports for efficiency

5.Financaila Analysis and Interpretation : to make

understand every one the results and progress.

6. Provides qualitative information like employ

productivity etc


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Tools and Techniques of Management

Accounting

Budgeting

Standard Costing and Variance Analysis

CVP and Marginal Costing

Ratio Analysis

Comparative financial statements

Fund Flow statement

Cash Flow Statement Responsibility accounting

Discounted Cash Flow

Risk analysis


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Two major subsystems of accounting information.

Both are concerned with revenues and expenses,

assets and liabilities and cash flows.

Both involve financial statements

FA Vs MA


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Management Accounting Vs Financial Accounting

Sl

N

o

Dimension Management

Accounting


1 Structure Varies According to the

use of Information.

Because the information

is use full for internal use

and the internal structure

differs from organization

Has uniform structure of

presenting information.

Because the preparation of final

accounts ( P&L, B/S and C/F) is

same in all organizations.

Why this is same is because to

facilitate the comparison.

2 Sources of

Principles

Whatever is useful to

mgt .The information required

is largely influenced by

internal usage.

GAAPs

Accounts are maintained andfinal accounts are prepared by

following GAAP reason is

information is to be presented

effectively and understood

properly by all the users


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Sl

No


Accounting


3 Need OptionalPrepared only if it is

required.

No external Compulsion.

Statutory Obligation.Mandatory Statutory Audit and Tax

Audit

4 Time

Orientation

Historical & Estimates

Future.

Not records historical

data

Even makes use of

historical data deals withforecasting.

Historical

Final accounts are on historical

base.

Therefore Historical Accounts

3 Report Entity Responsibility Centers

Business is divided in to

different sections

Overall Organization

The final accounts are prepared

on whole organization.


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Sl

No


Accounting


6 Purpose A means to the end ofassisting the

Management

To help mgt in

discharging functions

Statements for external users

It is an end it self as it deals with

preparation of final accounts only.

7 Uses Relatively small group

Managers and the people

who help the managers

Relatively large group

Face less group

No direct request for information

8 Information

content

Monetary and non

monetary

Quantitative and

qualitative information

No hrs worked, quantity

of materials used etc.

Primarily Monetary

Represents the transactions and

effect on the business only in

terms of money


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Management Accounting Vs Financial AccountingSl

No

Dimension Management Accounting Financial Accounting

9 Information

Precision

Mgt needs the information

urgently hence makes moreapproximations

Makes use lesser

approximations

10 Report

Frequency

Some information daily, weekly

and monthly in large orgnisaions.

Generally monthly

Annually and or

quarterly

11 Report Time

lines

Promptly after the end of the

period covered

Information needed is to take

immediate prompt decision by mgt

These reports are issued within few

days of the end of the month

Delay of weeks or

months

Usually after some time

the end of accounting

year because of printing

distribution

12 Liability

potential

Virtually none

not public document ,mangers may

be sued by the mgt for misuse of

information etc

Few law suits but threat

is always present

External users can always

sue the Mgt for

misrepresentations in

reports


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Similarities between Management Accounting and Financial

Accounting

Sl

No

Dimension Management Accounting Financial Accounting

1 GAPP Makes use of records

prepared by financial

accounting

Uses GAAP for preparation

2 Referring

documents

Bills, cheques, invoices etc Same are used here

3 Decision

making

Both are used for Both are used for


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Some authors consider both are one and same and

some distinguish .Horngren renowned author on the accounting

Modern cost accounting is often called management

accounting . Why Because cost accountants look at

their organization through managerseyes.Managerial aspects of cost accounting is inseparable

from management accounting.

MA and CA do not have clear cut boundaries.

CA Vs MA


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Management Accounting Vs Cost Accounting

Cost accounting is not only deals with ascertaining costs of products but

also helps for cost control and evaluating performance.

Most of costing concepts are used in management accounting

Sl No Dimension Management Accounting Cost Accounting

1 Scope Wider in its scope it includes

cost and financial accounting

Deals with cost data to management

2 Nature Past and future

Forward looking and

concerned with projection of

information, policies and

plans for future

It deals with past and present data

3 Objective Providing information tomanagement for decision

making

Ascertaining the cost product wise orservice wise

4 Evolution Recent origin Originated along with Financial

Accounting


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Sl No Dimension Management

Accounting

Cost Accounting

5 Utility of the

Data

Uses quantitative and

qualitative data

Uses the data which can be

expressed in figures

6 Principles No specific rules and

procedures are followed

in preparation . Prepared

as per need

Certain principles are followed for

different costs and are

consistently used.


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Limitations of Management Accounting

It is based on accounting information from cost andfinancial accounting. Effectiveness depends on reliability

of data

Requirement of comprehensive knowledge on the part of

managers It is supply of information and not decisions

It is only at the evolutionary stage

Interpretation depends on capability of

interpreter(managers)

Instillation of management accounting requires support

from many personnelin the organization (many may be

reluctant to adopt changes)


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Management Accounting Process


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Organization Chart of a Controllers Department


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Installation of Management Accounting System

Preparation of Organization Manual and Adoption:

It contains duties and responsibilities various managerial level. It willnot fix up responsibilities but avoids duplication of duties.

Preparation for various forms and returns required for collectionand presentation of information.

Recruitment and Training necessary staff.

Classification of accounts and Integration between financial andcost accounting.

Setting Standard Costing Techniques for controlling variation.

Setting Budgetary Control System for planning variousactivities and there should be a master budget.

Setting Up operation Research Techniques as the business istoo much volatile now a days


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Management Accountant

Person responsible for the supply of accountinginformation to the management.

He meets the information needs of different

managerial levels.

He is known by different names Financial Adviser,

Financial Controller Chief Accountant,

Comptroller, Controller

He is responsible for supplying accurateinformation.

Generally he performs the function staff manger

by providing information and leaving the decision

making on the part of functional mangers.


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Functions of Management

Accountant

Plans for control by using budgets, standard costing,

forecasting etc.,

Reports the deviations to Management

Evaluates the policies and programmers in terms of

effectiveness with relevance to objectives.

Reports the Govt Authorities regarding Taxation.

Assesses the effect of various policies on thebusiness(Economic, political etc)

Protects Assets by necessary Internal controls .


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Duties of Management Accountant Collection of Information from internal and

External sources: Different Departments,Sections, Stock Exchange other agencies.

Evaluating and segregating the information into

relevant and irrelevant

Interpretation of the information in terms of utility

of the information that is how it is useful.

Reporting the information to the management

management accounting vs other accountings

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