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Management Accounting introduction for Mcom Delhi University

Management Accounting introduction for Mcom Delhi University

Management Accounting introduction for Mcom Delhi University:- we will provide complete details of Management Accounting introduction for Mcom Delhi University in this article.

Management Accounting introduction for Mcom Delhi University

Introduction to 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 that field of accounting, which deals with providing information including financial accounting information to managers for their use in planning, decision-making, performance evaluation, control, management of costs and cost determination for financial reporting. Managerial accounting contains reports prepared to fulfil the needs of managements.

Management Accounting introduction for Mcom Delhi University:-MANAGEMENT ACCOUNTING-DEFINITION

Different authorities have provided different definitions for the term ‗Management Accounting‘. Some of them are as under:

―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

The Certified Institute of Management Accountants (CIMA) of UK defines the term ‗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

From the above definitions, it is clear that the management accounting is concerned with that accounting information, which is useful to the management. The accounting information is rearranged in such a manner and provided to the top management for effective control to achieve the goals of business. Thus, management accounting is concerned with data collection from internal and external sources, analyzing, processing, interpreting and communicating information for use, within the organization, so that management can more effectively plan, make decisions and control operations. The information to be collected and analysed has been extended to its competitors in the industry. This provides more meaningful clues for proper decision-making in the right direction.

The information in the management accounting system is used for three different purposes:

  1. Measurement
  2.  Control
  3. Decision-making

Management Accounting introduction for Mcom Delhi University:-Data and Information

The term Data means facts and consist of numbers, letters, symbols, raw facts, events and transaction which have been recorded but not yet processed into a form suitable for use.

Information is data which has been processed in such a way that it is meaningful to the person who receives it (for making decisions).

Management Accounting introduction for Mcom Delhi University:-Attributes of good information (ACCURATE)

The attributes of good information can be defined by the ACCURATE acronym as shown below:

  • A.Accurate: The degree of accuracy depends on why the information is needed.
  • C.Complete: Managers should be given all the information they need, but information should not be excessive.
  • C.Cost-effective: The value of information should be higher than the cost of producing it.
  • U.Understandable: Use of technical jargon must be limited. Accountants must always be careful about the way in which they present financial information to non-financial managers.
  • R.Relevant: The information contained within a report should be relevant to its purpose.
  • A.Accessible; Information should be accessible via the appropriate channels of communication.
  • T.Timely: Information should be provided to a manager in time for him/her to be useful for decision making and control.
  • E.Easy to use.

Management Accounting introduction for Mcom Delhi University:-Characteristics of Management Accounting

Management accounting provides data to the management on the basis of which they take decisions to achieve organizational goals and improve their efficiency. In this section, we will discuss the main characteristics of management accounting.

To Provide Accounting Information

Information is collected and classified by the financial accounting department, and presented in a way that suits managerial needs to review the various policy decisions of an organization.

Cause and Effect Analysis

One step further from financial accounting, management accounting works to know the reasons of profit or loss of an organization. It works to find out the causes for loss and also study the factors which influence the profitability. Therefore, cause and effect is a feature of management accounting.

Special Technique and Concepts

Budgetary control, marginal costing, standard costing are main techniques used in financial accounting for successful financial planning and analysis, and to make financial data more useful.

Decision Making

Studying various alternative decisions, studying impact of financial data on future, supplying useful data to management, helping management to take decisions is a part of management accounting.

Achieving Tasks

Financial data is used to set targets of the company and to achieve them. Corrective measures are used if there is any deviation in actual and targeted task. This all is done through management accounting with the help of budgetary control and standard costing.

No Fixed Norms

No doubt, tools of management accounting are same, but at the same time; uses of these tools depend upon need, size, and structure of any organization. Thus, no fix norms are used in application of management accounting. On the other hand, financial accounting totally depends on certain rules and principals. Therefore, presentation and analysis of accounting data may vary from one organization to another.

Increasing Efficiency

While evaluating the performance of each department of an organization, management accounting can spot the efficient and inefficient sections of an organization. With the help of that, corrective step can be taken to rectify the inefficient part for better performance. Hence, we can say that efficiency of a concern can increase using accounting information.

Informative Instead of Decision Making

Decisions are taken only by top management using information provided by management accountant as classified in a manner which is useful in decision making. Decision making does not come under preview of accountant, it is only the top management, who can take decision. Thus, decision of an organization depends on caliber and efficiency of the management.


Management accountant helps management in future planning and forecasting using historical accounting data.

Management Accounting introduction for Mcom Delhi University

Management accounting or managerial accounting is the process of identifying, analyzing, recording and presenting financial information that is used for internally by the management for planning, decision making and control.

In contrast to financial accounting, managerial accounting is concerned with providing helpful information and reports to internal users such as managers and entrepreneurs etc. so that they can control and plan the business activities. Few of the main areas, in which managerial accounting is used are:

  • Planning and Budgeting: Managers use managerial accounting techniques to plan what to sell, how much to sell, what price is to be charged to reimburse the costs of production and also earn an optimal profit. Also they have to plan how to finance the operations and how to manage cash etc. This is very important to keep the business operations working smoothly. The capital budgeting and master budget are the two important topics in this area.
  • Decision Making: When managers have to decide whether or not to start a particular project, they need managerial accounting information to estimate the benefits of various opportunities and decide which one to choose. Mangers often use relevant costing techniques.
  • Measurement of Performance: Managers have to compare the actual results of operations to budgeted figures to evaluate the performance of the business. They use managerial accounting techniques such as standard costing to evaluate the performance of specific departments. They then make necessary adjustments in those departments which are not performing well.

Management Accounting introduction for Mcom Delhi University:-Objectives of Management Accounting

Let us go through the objectives of management accounting:

Planning and Formulating Policies

In the process of planning and formulating policies, a management accountant provides necessary and relevant information to achieve the targets of the company. Management accounting uses regression analysis and time series analysis as forecasting techniques.

Controlling Performance

In order to assure effective control, various techniques are used by a management accountant such as budgetary control, standard costing, management audit, etc. Management accounting provides a proper managerial control system to the management. Reports are provided to the management regarding the effective and efficient use of resources.

Interpreting Financial Statement

Collecting accounting data and analyzing the same is a key role of management accounting. Management accounting provides relevant information in a systematic way that can be used by the management in planning and decision-making. Cash flow, fund flow, ratio analysis, trend analysis, and comparative financial statements are the tools normally used in management accounting to interpret and analyze accounting data.

Motivating Employees

Management accounting provides a selection of best alternative methods of doing things. It motivates employees to improve their performance by setting targets and starting incentive schemes.

Making Decisions

Success of any organization depends upon accurate decision-making and effective decision-making is based on informational network as provided by management accounting. Applying techniques of differential costing, absorption costing, marginal costing, and management accounting provides useful data to the management to aid in their decision-making.

Reporting to Management

It is the primary role of management accounting to inform and advice the management about the latest position of the company. It covers information about the performance of various departments on regular basis to the management which is helpful in taking timely decisions.

A management accountant also works in the capacity of an advisory to overcome any existing financial or other problems of an organization.

Coordinating among Departments

Management accounting is helpful in coordinating the departments of an organization by applying thorough functional budgeting and providing reports for the same to the management on a regular basis.

Administrating Tax

Any organization must comply with the tax systems prevailing in the country they are operating from. It is a challenge due to the ever-increasing complexity of the tax structure. Organization need to file various kinds of returns with different tax authorities. They need to calculate the correct amount of tax and assure timely deposit of tax. Therefore, the management takes guidance from management accountants to comply with the law of the land.

Management Accounting introduction for Mcom Delhi University

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