Management Accounting
MANAGEMENT ACCOUNTING
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Management Accounting is
a profession that involves
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Partnering in management decision making
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Devising planning & performance
management systems
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Providing expertise in financial reporting
and control
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In simple words it is the decision making
process through planning and controlling operations
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Planning occurs in the budgeting process
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Controlling occurs to compare the actual
performance with budget amount
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In a more simple language Management
accounting is the process which involves
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Identifying
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Measuring
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Analyzing
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Interpreting
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& Communicating information
Responsibilities
of a Manager in Managerial Accounting
· Planning
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Setting goals & objectives
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How to achieve goals & objectives?
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Examples can be the
§ Generate more sales by opening new stores
§ Reduce labor costs by reducing store hours
· Directing
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Overseeing company’s day to day operations
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Delegate roles & responsibilities
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Motivate & inspire the subordinates
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Examples can be the
§ Using daily sales reports to adjust marketing strategy
§ Using product cost reports to adjust raw material usage
· Controlling
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Evaluation results of operations against
plans and making adjustments as needed
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Measuring & comparing performance
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Examples can be the
§ Comparing budgeted sales with actual sales to take
corrective actions
§ Comparing budgeted product costs against actual product
costs to take corrective actions
· Decision Making
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Management is continually making decisions
while it plans, directs and controls operations
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Examples can be the
§ Price setting
§ Product offering
§ Renovation of facilities
§ Operation openings or closings
Characteristics,
Scope, Objectives and Functions
· Characteristics
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Reporting to managers and internal personnel
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Tailored to specific decision making tasks
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Focused on
§ Products
§ Departments
§ Activities
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Often uses real time data for quick responses
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Forecasted outcomes for planning
· Scope
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Financial Accounting (Provides historical
information useful for the financial forecasting)
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Cost Accounting (Provides various techniques
of costing for planning & decision making)
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Forecasting & Budgeting (Used the
forecasting & budgeting tool in the process of decision making)
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Tax accounting & Tax planning (Analysis
of implication of tax provisions on future projects)
· Objectives
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Presentation of data
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Aid of planning & forecasting
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Help in organization
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Decision making
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Effective control
· Functions
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Communication
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Incorporation
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Coordination
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Motivating employees
Tools
and Techniques
· Financial Policy
and Accounting
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Firms has to take decisions about sources of
raising funds
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Issue of share capital
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Raising of loans
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Decision on the proportion between share
capital and loans
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Financial planning
· Analysis of
Financial Statements
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Classify and Present the financial data
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Analysis of
§ Financial statements
§ Fund flow
statements
§ Trend analysis
· Historical Cost
Accounting
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Price of an asset on the balance sheet on the
basis of actual cost when acquired by the company
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Actual cost is compared with standard cost to
get an idea about performance of the concern
· Budgetary Control
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System which uses budgets as a tool for
planning and control
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Budget should be prepared in advance
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Actual performance is compared with the
predetermined targets
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It helps to assess the performance of each
and every persons in the organization
· Standard Costing
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Costs are determined in advance
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Actual cost are recorded and compared with
the standard costs
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Variance are analyzed
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It helps to enhance the efficiency of the
concern
· Marginal Costing
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This method is concerned with the changes in
cost resulting from changes in the volume of production
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It helps to measure the profitability of
§ Different lines of production
§ Different departments
§ Divisions of an enterprise
· Decision Accounting
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It is an important work of management
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It involves a choice from various
alternatives
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Calculates financial implications of each
alternative course of action and helps management to select best course of
action
· Revaluation
Accounting
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Also known as replacement accounting
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It is used to denote the methods employed for
overcoming the problems connected with fixed asset replacement in a period of
rising prices
· Control Accounting
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These are the methods & procedures that
are implemented by a firm to help ensure the validity and accuracy of its own
financial statements
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In controlling accounting we can use
§ Internal check
§ Internal audit
§ Statutory audit
· Management
Information System
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It is a computerized database of financial
information organized and programmed in such a way that it produces regular reports
on operations for every level of management in a company
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Data planning is supplied to management
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