MANAGEMENT

ACCOUNTING
MEANING
 Management accounting is
comprised of two words ‘
management ‘ and accounting.
 It is the study of managerial aspect
of accounting.
 The emphasis of it is to redesign
accounting in such a way that it is
helpful to the management in
formation of policy, control of
execution and appreciation of
Origin of Management
accounting
 The term management accounting is of a
recent origin.
 The complexities of business environment
have necessitated the use of management
accounting for planning, coordinating,
controlling and decision-making functions of
management.
 A small entrepreneur can manage with all the
day to day transactions.
 The use of simple accounting enables the
preparation of profit and loss account and
balance sheet for determining profitability and
assessing financial position of the enterprise.
 All informational needs for managerial
purposes are, met by simple financial
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 The evolution of joint stock company form of
organization has resulted in large-scale
production and separation of ownership and
management.
 The introduction of professionalism in
management has brought in the division of
organization into functional areas and
delegation of authority and decentralization of
decision-making.
 It requires the evolution of information system
for helping management in planning and
assessing the results.
 The accounting information is required as a
guide for future.
 The management is to be fed with precise and
Definitions
 “Management accounting is the
presentation of accounting information
in such a way as to assist management
in the creation of policy and the day-to-
day operation of an undertaking”
 “Management account is the term used
to describe the accounting methods,
systems and techniques which, coupled
with special knowledge and ability,
assist management in its task of
maximizing profits or minimizing losses”
 “The essential aim of management
accounting should be to assist
Nature of management
accounting
 Providing accounting information:
Management a/c is based on
accounting information.
The collection and classification of
data is the primary function of
accounting department.
The information so collected is used
by the management for taking policy
decisions.
Management accounting involves the
presentation of information in a way it
suits managerial needs.
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 Cause and effect analysis:

Financial a/c is limited to the
preparation of profit and loss account
and finding out the ultimate result, but
management a/c goes a step further.
The cause and effect relationship is
discussed in management accounting .
If there is a profit or loss the reasons
are analyzed.
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 Use of special techniques and concepts:
Management accounting uses special
techniques and concepts to make
accounting data more useful
The techniques usually used include
financial planning and analysis,
standard costing, budgetary control,
marginal costing, project appraisal.
The type of technique to be used will
be determined according to the
situation and necessity
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 Taking Important Decision:
Management a/c helps in taking
various important decisions
It supplies necessary information to
the management which may base its
decisions on it
The historical data is studied to see its
possible impact on future decisions.
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 Achieving of Objectives:
In management accounting, the accounting
information is used in such a way that it helps
in achieving organizational objectives.
Historical data is used for formulating plans
and setting up objectives
The recording of actual performance and
comparing it with targeted figures will give an
idea to the management about the
performance of various departments.
It is possible with the help of budgetary
control and standard costing
Objectives of management
accounting
 Planning and Policy Formulation
 Helpful in controlling performance
 Helpful in Organizing
 Helpful in Interpreting Financial
statements
 Motivating Employees
 Helpful in Making Decisions
 Reporting to Management
 Helpful in Co-ordination
 Tax Administration
Functions of management
accounting
 Planning and forecasting
 Modification of Data
 Financial Analysis and interpretation
 Facilitates managerial control
 Use of qualitative Information
 Coordinating
 Helpful in taking Strategic Decisions
 Supplying Information to various levels
of management
Relationship between
management accounting
and financial accounting
 Object: The object of financial
accounting is to record various
transactions with the purpose of
maintaining accounts and to know the
financial position and to find out profit
loss at the end of the financial year.
Management accounting is
essential to help management in
formulating policies and plans.
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 Nature: Financial accounting is
concerned with historical data.
Management accounting deals
with projection of data for the
future. It uses historical data
only for taking decisions for
the future.
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 Accounting Principles:
Financial accounts are governed
by the generally accepted
principles and conventions.
Management accounting is
used for taking policy
decisions, form differs from
concern to concern.
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 Sources of Data:
Financial accounting is
exclusively drawn from the firms
basic accounting system. (journal,
ledger)
Financial accounting and cost
accounting is basic source for
management accounting.
ROLE OF MANAGERIAL
ACCOUNTANT
 Providing the manager with information
for decision making and planning
 Assisting the managers in directing and
controlling operational activities
 Motivating managers & other
employees towards the organizations
goals
 Measuring the performance of sub-units
,managers & other employees
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 Acts as a controller who is
responsible for preparing the
information and reports used in
both managerial and financial
accounting
 Acts as a treasurer for raising the
capital & safe-guarding the assets
 Acts as a internal auditor for
reviewing the accounting
procedure and reports