Nature and Functions for Managerial Accounting Mcom Delhi University

Nature and Functions for Managerial Accounting Mcom Delhi University :- we will provide complete details of Nature and Functions for Managerial Accounting Mcom Delhi University in this article.

Nature and Functions for Managerial Accounting Mcom Delhi University :-Concept of Management Accounting

In ordinary language any system of accounting, which assists management in carrying out its functions more efficiently may be termed as management accounting. The Institute of Chartered Accountants of England and Wales has stated that “any form of accounting, which enables a business to be conducted more efficiently can be regarded as Management Accounting.”

On the same lines, Robert N. Antony has stated, “Management accounting is concerned with accounting information which is useful to management.” However, these definitions are very general in nature.

Nature and Functions for Managerial Accounting Mcom Delhi University

Nature of management accounting guides to know main characteristics of management accounting. Following are main points which shows the nature of management accounting:

1. No Fixed Norms Followed

In financial accounting, we follow different norms and rules for creating ledgers and other account books. But there is no need to follow fixed norms in management accounting. Management accounting tool may be different from one organization to other organization. Using of different tools of management accounting is fully dependent on the persons who are using it. So, business policy of each organization affects rules and regulation of applying management accounting.

2. Increase in Efficiency

It is the nature of management accounting that it is used for increasing in the efficiency of organization. It scans the points of inefficiency through analysis of accounting information. By taking action for improving, organization can increase the efficiency.

3. Supplies Information not Decisions

Management accountant supplies accounting facts and information and also provides interpretation, but decision making is fully dependent on higher authorities. Management accounting is just guide.

4. Concerned with Forecasting

It is the temperament of management accounting that it is fully concerned with forecasting. In management accounting, historical accounting information is analyzed through common size financial statement, ratio analysis, fund flow analysis and accounting data tendency for knowing the probability of next fact. So, all these things are especially useful for forecasting.

These forecasting may be related with following things

a) sales forecasting
b) production forecasting
c) earning forecasting
d) cost forecasting

Nature and Functions for Managerial Accounting Mcom Delhi University :-Functions of Management Accounting:

The bask function of management accounting is to assist the management in performing its functions effectively.

The manner in which management accounting satisfies the requirements of the management for arriving at appropriate business decisions may be described as follows:

1. Modification of Data:

Accounting data as such are not suitable for managerial decision-making and control purposes. However, they may be used as the basis for making future estimates and projections.

In fact management accounting modifies the available accounting data by rearranging the same, by resorting to a process of classification and combination, which enable retention of the similarities of data without eliminating the dissimilarities.

For example, the sales figures for different months may be classified to know the total sales made during the period product-wise, salesman-wise, and territory-wise.

2. Analysis and Interpretation of Data:

The accounting data is analyzed and interpreted meaningfully for effective planning and decision-making. For this purpose the data is presented in a comparative form. Analytical tools such as Comparative Financial Statements, Common-size Statements, Trend percentages, and ratio Analysis are used and likely trends are projected.

3. Facilitating Management Control:

Management accounting enables all accounting efforts to be directed towards the attainment of goals efficiently by controlling the operations of the company more effectively.

Standards of performance and measure of variation there from are the essential elements of any control system. All these are made possible through standard costing and budgetary control systems, which are an integral part of management accounting.

4. Use of Qualitative Information:

Mere financial data and its analysis and interpretation are not sufficient for decision-making purposes. The management may need qualitative information, which cannot be readily converted into monetary terms.

Such information may be obtained from statistical compilations, engineering records, case studies, minutes of meetings, etc. Management accounting does not restrict itself to financial data alone for helping management; it also uses such [qualitative] information.

5. Satisfaction of Informational Needs of Different Levels of Management:

Different levels of management such as top level, middle level, and lower level managements need different types of information. The top management needs concise information covering the entire field of business activities at relatively long intervals.

The middle level management requires technical data regularly, and the lower level management is interested in detailed figures relating to the particular sphere of activity at short intervals.

Hence, the main function of management accounting is to process accounting and other data in such a way as to satisfy the needs of different levels of management.

Nature and Functions for Managerial Accounting Mcom Delhi University :-Scope of Management Accounting:

The main concern of management accounting is to provide necessary quantitative and qualitative information to the management for planning and control. For this purpose it draws out information from accounting as well as non-accounting sources.

Hence, its scope is quite vast and it includes within its fold almost all aspects of business operations. However, the following areas may rightly be pointed out as lying within the scope of management accounting.

i. Financial Accounting:

The major function of management accounting is the rearrangement or modification of data. Financial accounting provides the very basis for such a function. Hence, management accounting cannot obtain full control and coordination of operations without a well-designed financial accounting system.

ii. Cost Accounting:

Planning, decision-making and control are the basic managerial functions. The cost accounting system provides necessary tools such as standard costing, budgetary control, inventory control, marginal costing, and differential costing etc., for carrying out such functions efficiently. Hence, cost accounting is considered a necessary adjunct of management accounting.

iii. Revaluation Accounting:

Revaluation or replacement value accounting is mainly concerned with ensuring that capital is maintained in real terms and profit is calculated on this basis.

iv. Statistical Methods:

Statistical tools such as graph, charts, diagrams and index numbers etc., make the information more impressive and comprehensive. Other tools such as time series, regression analysis, sampling techniques etc., are highly useful for planning and forecasting.

v. Operations Research:

Modern managements are faced with highly complicated business problems in their decision-making processes. O P techniques like linear programming, queuing theory, decision theory, etc., enable management to find scientific solutions for the business problems.

vi. Taxation:

This includes computation of income tax as per tax laws and regulations, filing of returns and making tax payments. In recent times, it also includes tax planning.

vii. Organization and Methods [O&M]:

O&M deal with organizations reducing cost and improving the efficiency of accounting, as also of office systems, procedures, and operations etc.

viii. Office Services:

This includes maintenance of proper data processing and other office management services, communication and best use of latest mechanical devices.

ix. Law:

Most of the management decisions have to be taken in a legal environment where the requirements of a number of statutory provisions or regulations are to be fulfilled.

Some of the Acts, which have their influence on management decisions, are as follows:

The Companies Act, MRTP Act, FEMA, SEBI Regulations, etc.

x. Internal Audit:

This includes the development of a suitable system of internal audit for internal control.

xi. Internal Reporting:

This includes the preparation of quarterly, half yearly, and other interim reports and income statements, cash flow and funds flow statements, scarp reports, etc.

Nature and Functions for Managerial Accounting Mcom Delhi University

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