VRS & YRN COLLEGE :: CHIRALA

I.Mcom – I Semester
Accounting For Managers
Unit I

Management Accounting :
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. Thus, it Relates to the use of accounting
data collected with the help of financial accounting and cost Accounting for
the purpose of policy formulation, planning, control and decision-making by
the Management.

Management accounting links management with accounting as any

accounting information Required for taking managerial decisions is the
subject matter of management accounting.

Definition
As per International Federation of Accountants (IFAC): Management
Accounting may be defined as “The process of identification, measurement,
Accumulation, analysis, preparation, interpretation, and communication Of
information both financial and operating used by management to plan,
Evaluate and control within an organization and to assure use of and
Accountability for its resources”.

 NATURE OF MANAGEMENT ACCOUNTING

Management accounting is considered as the backbone for every
organization. It assists the Managers by providing the relevant and accurate
information within time for taking rational Decisions to short out the business
problems. The management accounting should possess the Following
essential characteristics:-
• Helpful in Decision Making:- It helps the management of an
organization by providing
Relevant and accurate information from various sources (like financial and
cost accounting) in Order to make sound decisions to solve business
problems.
• Provides Data, Not the Decision:- It only provides required data and
information to the
Management, not the decision. It is up to the management that how they
make use of the
Available data and information to solving the business problems through
taking effective
Decisions and actions within time.
• Selective in Nature:- Management accounting is selective in nature.
Here selective
Means, in management accounting a management accountant only collect
those data and
Information from a various alternatives which may create more benefits and
easiness to the Management in decision making.
• Assist in Achieving Objectives:- Management Accounting always assist
organization in
Achieving its predetermined objectives and goals. It provides detailed
information regarding the
Weakness and the strength of the department and the organization in the
form of report and on The basis of various report organization can eliminate
identified problems and weakness and May achieve its goal easily.
• Related to Future:- Management Accounting is futuristic in approach. It is
an Accounting system which is directly related to future course of events. It
helps the organization To forecast its future on the basis of available
information relating to the past events and
Historical data.
• Increase in Efficiency:- It also plays an essential role in increasing
efficiency of Organization. In this competitive business world it is difficult for
any organization to carry out Its entity forever. Hence to survive for long run
it is important for organization to increase its efficiency by finding the errors,
mistakes and shortcomings and removing it through Various management
accounting techniques such as standard costing, budgetary control, control
Accounting etc.
• Use of Special Techniques:- Management Accounting uses special tools
and Techniques like standard costing, budgetary control, control accounting,
marginal costing etc for Composing the accounting information and making
data more accurate and relevant so that the Management can easily make
their decisions.

 Scope of Management Accounting :

A detailed description of the various scopes of management accounting is as

follows:
 1. Cost Accounting
Cost accounting is a crucial accounting technique because it provides cost
analysis tools for a business, such as marginal cost, operational cost,
inventory costing, budget control, etc. These are required by business
management to draft and outline the business needs.

Cost accounting assists in determining the total budget for any firm and
gives several methods for estimating and calculating the entire cost of
providing a service to the consumer. Cost accounting is also essential for
business analysts and executives since each company’s activity depends on
the cost involved.
2. Financial Accounting
Financial accounting and cost-accounting are not the same things. As
mentioned earlier, cost accounting involves calculating and analyzing the
overall cost of a business process. Conversely, financial accounting
calculates and analyses business transactions, including expenses,
inventories, assets, and reporting. Financial statements are critical in
financial accounting and are prepared regularly at the end of each fiscal year.
Financial statements comprise the company’s balance sheet and the overall
profit or loss produced by the business or company in the current fiscal year.
Financial accounting is critical for the organization’s financial forecasts
because it provides the general financial information incurred throughout the
current fiscal year.
3. Budgeting and Forecasting
Budgeting and forecasting are also part of the management accounting
scope, including budget control and business forecasting trends. Budget
management systems are based on financial data and business
performance. Budget control aids in identifying and analyzing the causes and
weak points that slow down coordination and decrease business
performance.
4. Data Interpretation
Data interpretation is described as converting business data into facts and
statistics that business management can easily understand. Interpreting your
work is just as crucial to your business as financial reporting because it helps
you avoid drawing erroneous conclusions from your business data. If the data
is not appropriately comprehended and evaluated, it might spell doom for a
market business.
5. Financial Administration
Financial management is the administration and planning of a company’s
financial resources. Raising cash and using them wisely is critical for sound
financial management. The purpose of considering financial management as
managerial accounting in terms of scale is to optimize a company’s profits
through the efficient use of cash. Finance was and continues to be the most
crucial part of every organization, and a business cannot function without
effective financial management.
 6. Management Reporting/Reporting
Reporting is essential for each business manager. Obtaining reports on time
is critical for managing corporate growth and resources. The timely report
assists management in making successful decisions and keeps management
informed of ongoing operations. Data and reports are presented to
management in simple graphs, charts, and presentations. According to the
company requirements, reports are retrieved weekly, monthly, quarterly, and
yearly, and these reports are beneficial when examining corporate data.
7. Accounting for Inflation
Inflation analysis is critical in business and is described as a drastic change in
financial results when market prices change. Inflation accounting refers to
inflation analysis tools that aid in identifying the causes of inflation and
eradicating them for improved performance.
8. Analysis of Financial Statements
As mentioned earlier in financial accounting, financial statements are
prepared after each fiscal year to study and analyze the financial growth of a
business. The financial accounts provide insights into the business and aid in
its growth through their interpretations and conclusions.

 Objectives of Management Accounting

Management accounting is one of the three main branches of accounting. It

is important decision-making within a business. Management accounting
objectives focus on providing a comprehensive framework for financial
management to support business operations.
1. Decision Making
Decision-making is an important objective of management accounting.
Through this branch of accounting, managers can make better decisions as it
offers detailed insights into various financial aspects. Management
accounting helps in choosing between alternative strategies, assessing
investment opportunities, and determining the most efficient use of
resources. Businesses can navigate through complex decisions with more
precision. It also helps in operational and strategic decision-making.
2. Planning
Planning is a strategic objective of management accounting. It involves
setting goals and outlining the steps necessary to achieve them. By
analysing the historical data and market trends, management accounting
provides forecasts. Planning ensures that the business has long-term
strategies and short-term tactics.
3. Controlling Business Operations
Controlling business operations is one of the fundamental objectives of
management accounting. It involves monitoring performance against
established benchmarks and implementing corrective measures when
deviations occur. This control mechanism is vital for ensuring that business
activities are aligned with planned objectives, optimizing efficiency, and
maintaining financial discipline.
 4. Organizing Business Processes
Organizing, as an objective of management accounting, focuses on
structuring business processes and resources efficiently. It aids in designing
an organizational framework that supports financial management and
operational efficiency.
Management accounting identifies key profit centers and cost centers,
facilitating effective resource allocation and departmental accountability.
This structured approach ensures that resources are utilized where they can
generate the most value, enhancing the organization’s financial health and
operational effectiveness.

5. Understanding Financial Data

One of the primary objectives of management accounting is making complex
financial data accessible and understandable to non-financial managers. This
demystification of financial information is crucial for informed decision-
making across the organization. Management accounting translates intricate
financial statements and metrics into clear, actionable insights. Managers
can determine the financial health of their departments, understand the
economic impact of their decisions.
6. Identifying Business Problem Areas
Identifying problem areas within the business is a critical objective of
management accounting. It involves scrutinizing financial and operational
data to pinpoint inefficiencies, cost overruns, and areas not aligning with the
company’s financial goals. This diagnostic process is essential for
maintaining operational efficiency and financial health.
7. Strategic Management
Strategic management is at the core of management accounting objectives.
It aligns financial analysis and planning with the company’s long-term vision
and strategic goals. Management accounting supports strategic
management by offering insights into market trends, competitive dynamics,
and internal resource capabilities.
8. Provides Data & Analyzes Data
Providing and analyzing data are fundamental objectives of management
accounting that underpin its role in supporting business operations.
Management accounting gathers comprehensive financial and operational
data, offering a detailed view of the company’s performance.
This data serves as the foundation for forecasting, budgeting, and strategic
planning. By analyzing this information, management accounting identifies
trends, assesses financial health, and uncovers insights that guide decision-
making.

 Role of managerial accounting in decision making:

1. Cost analysis: One of the primary functions of management

accounting is to provide cost information to managers. By
understanding the costs associated with different products or services,
 managers can make informed decisions about pricing, production
methods, and resource allocation. For example, management
accounting can help managers to identify the most profitable products
or services, and allocate resources accordingly.
2. Budgeting and forecasting: Management accounting helps
managers to develop budgets and forecasts that guide the
organization’s planning process. By analyzing historical data and
market trends, managers can anticipate future expenses and revenues,
and allocate resources accordingly. This allows managers to make
informed decisions about investments, resource allocation, and
expansion opportunities.
3. Performance evaluation: Management accounting provides
managers with tools to measure and evaluate the performance of
various departments and employees. This involves comparing actual
performance against budgeted or expected performance and
identifying areas where improvements can be made. By monitoring
performance, managers can make informed decisions about resource
allocation and take corrective action when necessary.
4. Investment analysis: Management accounting helps managers to
evaluate investment opportunities and make informed decisions about
capital expenditures. By analyzing the costs and benefits of various
options, managers can make informed decisions about investments
that align with the organization’s goals and objectives. This allows
managers to make investments that maximize profitability and growth.
5. Risk analysis: Management accounting provides managers with
information about potential risks and uncertainties. By analyzing
financial data, managers can identify potential risks and develop
strategies to mitigate them. This allows managers to make informed
decisions about investments and other business decisions that could
affect the organization’s financial performance.
 Difference between Financial Accounting & Management
Accounting: