1) INTRODUCTION TO MANAGEMENT

ACCOUNTING
1.1 TYPES OF ACCOUNTING, MEANING, AND
DEFINITION MANAGEMENT ACCOUNTING
1.2 IMPORTANCE, OBJECTIVES,
ADVANTAGES, AND LIMITATIONS.
1.3 DISTINCTION BETWEEN FINANCIAL
ACCOUNTING, COST ACCOUNTING, AND
MANAGEMENT ACCOUNTING.
MANAGEMENT ACCOUNTING:
 Management accounting refers to all types of accounting
information and reports for the internal use of management.

 Management accounting is concerned with providing information

to managers to carry out their managerial responsibilities and
functions such as planning, execution, control, and decision-
making.

 Management accounting “ is the process of identification,

measurement, accumulation, analysis, preparation, and
communication, of financial information used by the management
to plan, evaluate and control within the organization and to assure
appropriate use and accountability for its resources.”

 Management accounting provides both past and future data to the

management in evaluating and controlling performance and in
planning future operations.
Ex Information for selling price determination to top mang
Management Accounting has following objectives:
 To determine product costs
 To facilitate planning and control of regular business activities

 To supply information for short and long-run decision

 Inventory valuation and income determination

 Decision Making

 Price fixation
Advantages of Management Accounting:
 Reveals profitable and unprofitable activities

 Decision making tools

 Assists in policy formulation

 Checks the accuracy of financial accounts

 Prevent manipulation and fraud

 Negotiation with government and labor union

 Cost comparison with various alternatives

The following advantages may be derived from Management
Accounting:

1. It measures the actual performance in comparison with the budgets.

2. It helps the management in such a way that the latter can maximize the
rate of return on capital employed.

3. The business activities are managed better by the application of both

budgeting and planning.

4. No doubt it helps to increase the efficiency of the business.

5. It also helps to improve the relation between the management and labor.
LIMITATION OF MANAGEMENT
ACCOUNTING:
Major drawbacks or limitations of management accounting can be expressed as
follows:
1.Lack Of Specific Procedure: Management accounting does not follow specific
accounting rules, procedure and techniques. So, it fails to provide accurate
information and data in the lack of proper principles.
2.Uncertainty: Management accounting is futuristic in nature, so it provides data
and information for the purpose of future planning, decision making, forecasting,
and decision making. Since future is uncertain, its plans and policies may not bring
expected results. 
3.Dependency: Management accounting is practiced on the basis of data and
information received from cost and financial accounting. So, its accuracy and
reliability depends on the effectiveness of cost accounting and financial accounting
system. 
4.Costly System: Management accounting is very expensive system to install and
practice. Low budget business houses cannot afford to install it.
6. Only A Tool
Management accounting is only a tool to provide data and information to the
management. It is not the alternative of management and cannot make any decision.

7. Personal Bias
Management accounting may be affected by the personal interpretation and bias of
the top manager. Decisions may be influenced by personal prejudices of an
individual.
Point Financial Management Management Accounting
Meaning & Financial Accounting is an The accounting system which
Definition accounting system that focuses on provides relevant information to
the preparation of financial the managers to make policies,
statement of an organization to plans and strategies for running the
provide the financial information business effectively is known as
to the interested parties. Management Accounting.

Type of cost Financial Accounting uses only Management Accounting uses

considered historical costs. Both historical and pre-
determined cost
Is it Financial accounting is Management accounting is not
compulsory mandatory mandatory
Purpose Purpose of Financial Purpose of Management
accounting is Keeping Accounting is To assist the
complete record of the management in planning and
financial transactions. decision making process by
providing detailed information
on various matters.
Points Financial Management Management Accounting

Formats Financial Accounting reports are There are no specific formats for
prepared in specified formats. Management Accounting reports.

Time frame Financial Accounting reports are Management accounting reports

prepared at the end of financial are prepared as and when
year. required by the manager.

Publishing Required to be published and Neither published nor audited by

and audited by statutory auditors statutory auditors.
auditing
Users Users of Financial Accounting are Users of Management Accounting are
Internal and external parties Only internal management.

Reports Summarized Reports about the Complete and Detailed reports

financial position of the organization regarding various information.

Type of Financial Accounting related with Management Accounting is related

Informatio monetary information only with monetary as well as non
n monetary information.
Differentiate between Management Accounting and Cost Accounting:

Points Management Accounting Cost Accounting

1. Meaning The accounting system which provides The recording, classifying and
or Definition relevant information to the managers to summarizing of cost data of an
make policies, plans and strategies for organization is known as cost
running the business effectively is accounting.
known as Management Accounting
2. Type of Management accounting uses Cost Accounting uses Quantitative
Information Quantitative and Qualitative information
information
3. Objective Providing information to managers to Ascertainment of cost of production.
set goals and forecast strategies.
4. Type of It gives more stress on the analysis Records past and present data
data of future projections.
recorded
5. Principle Principals of cost accounting and Only cost accounting principles
used financial accounting are used in are used in it.
management accounting.
6. Auditing No statutory requirement of audit for In some big organization it is
reports. necessary
 Points Management Accounting Cost Accounting
7. Scope Scope of Management Scope of Cost Accounting is much
Accounting is much broader. narrower .
8. It is concerned with both short It is more concerned with short
Planning range and long range planning. range planning.
9. Users Only internal parties are using the Both internal and external parties
reports of the management are using the reports of the cost
accounting. accounting.
Financial Accounting Vs Cost Accounting
Financial Accounting Cost Accounting
Financial Accounting is used for Cost Accounting is used by manager for
communication of financial position planning , organizing, decision making
Financial Accounting records data in Cost Accounting records data in an
subjective manner that is according to objective manner that is according to
nature of expenses purpose of expenditure
Financial reporting is done at the end of Cost reports are prepared as and when
period. required by the manager.
Financial Accounting usually disclose the Cost Accounting usually disclose the
net profit and loss of the business as a profit and loss of each product job or
whole services.
Financial Accounting not give emphasis Cost Accounting provides detail system
on the control of control.
Financial Accounting meets requirement Cost Accounting meets requirement of
of Company act and Income Tax Act managers.
External Users:
Investors: Investors need to know how well their investment
is performing. Investors primarily rely on the financial
statements published by companies to assess the
profitability, valuation and risk of their investment.

Lenders: Lenders use accounting information of borrowers to

assess their credit worthiness, i.e. their ability to pay back
any loan

Auditors:
External auditors examine the financial statements and the
underlying accounting record of businesses in order to form
an audit opinion. Investors and other stakeholders rely on the
independent opinion of external auditors on the accuracy of
financial statements.
Government
Government ensures that a company's disclosure of accounting
information is in accordance with the regulations that are in place to
protect the interest of various stakeholders who rely on such
information in forming their decisions. Government defines and
monitors accounting thresholds such as sales revenue and net profit to
determine the size of each business for the purpose of ensuring that it
complies with the relevant employee, consumer and safety regulations.

Public:
General public may also be interested in accounting information of a
company. These could include journalists, analysts, academics,
activists and individuals with an interest in economic developments.
 

 
Suppliers:
Just like lenders, suppliers need accounting information to assess the credit-
worthiness of its customers before offering goods and services on credit.

Consumers:
Industrial consumers however need accounting information about its
suppliers in order to assess whether they have the required resources that
are necessary for a steady supply of goods or services in the future.
Continuity in supply of quality inputs is essential for any business.

Tax Authorities
Tax authorities determine whether a business declared the correct amount
of tax in its tax returns. Occasionally, tax authorities conduct audits of the
tax returns filed by businesses in order to verify the information with the
underlying accounting records.
Users of accounting information:
Internal Users
Owner: Owners need to assess how well their business is performing. Financial statements
provide information to owners about the profitability of the overall business. Such
information helps owners to decide if they should invest any further in the business or if
they should use their financial resources elsewhere in more promising business ventures.

Manager: Managers need accounting information to plan, monitor and make business
decisions. Management requires accounting information to monitor the performance of
business by comparison against past performance, competitor analysis, key performance
indicators and industry benchmarks.

Employees: For the employees operating in the finance department, using accounting
information is usually part of their job description. This includes for example preparing and
reviewing various financial reports such as financial statements.

External Users:
Investors: Investors need to know how well their investment is performing. Investors
primarily rely on the financial statements published by companies to assess the profitability,
valuation and risk of their investment.

Lenders: Lenders use accounting information of borrowers to assess their credit worthiness,
i.e. their ability to pay back any loan
Suppliers:
Just like lenders, suppliers need accounting information to assess the credit-worthiness of its
customers before offering goods and services on credit.

Consumers:
Industrial consumers however need accounting information about its suppliers in order to
assess whether they have the required resources that are necessary for a steady supply of
goods or services in the future. Continuity in supply of quality inputs is essential for any
business.

Tax Authorities
Tax authorities determine whether a business declared the correct amount of tax in its tax
returns. Occasionally, tax authorities conduct audits of the tax returns filed by businesses in
order to verify the information with the underlying accounting records.

Government
Government ensures that a company's disclosure of accounting information is in
accordance with the regulations that are in place to protect the interest of various
stakeholders who rely on such information in forming their decisions. Government defines
and monitors accounting thresholds such as sales revenue and net profit to determine the
size of each business for the purpose of ensuring that it complies with the relevant
employee, consumer and safety regulations.

 
Auditors:
External auditors examine the financial statements and the underlying accounting record of
businesses in order to form an audit opinion. Investors and other stakeholders rely on
the independent opinion of external auditors on the accuracy of financial statements.

Public:
General public may also be interested in accounting information of a company. These
could include journalists, analysts, academics, activists and individuals with an interest
in economic developments.