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प्रबन्धकीय लेखाविधि Management Accounting
प्रबन्धकीय लेखाविधि Management Accounting
Why does Accountant do hard work day and night for recording and analysis of financial
transactions?
Both above two questions are inter-related and invention of management might happen
due to the finding answer of above two question
Ans of 1st question : Manager can take the decision with accounting information.
Ans. of 2nd question : Accountant do hard work for providing help to management of
company.
After this following Cycle will start
Raw data
↓
↓
Useful Data
↓
↓
→→ Management Accounting →→ Decision
Making
In simple words, any form of accounting enables business to be conducted more efficiently
can regarded as management accounting.
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
a) sales forecasting
b) production forecasting
c) earning forecasting
d) cost forecasting
2. Interpretation Scope
After analysis through ratio analysis, fund flow analysis, cash flow analysis or any
other tool of management accounting, our next management accounting scope is
interpretation scope. Analyzed data is also no tongue if you have no idea how to
explain it? So, this is big scope for every wise man. Same analyzed financial
statement's meaning may be different if interpretation is given by different account
managers. For example, If we open the financial statement of twelve five years plan
and we find that govt of India paid 1,10,000 Crores rupees for ending of poverty and
you can find different detail of it. But if new account manager links it with no. of
poor people, then we can see still 85% persons are poor. So, meaning of spending
of Rs. 1,10,000 crores will become opposite. So, interpretation is important part of
management accounting scope.
"Who and how is the accounting information used for decision making?", is the part
of scope of management accounting.
2. Interpretation Scope
After analysis through ratio analysis, fund flow analysis, cash flow analysis or any
other tool of management accounting, our next management accounting scope is
interpretation scope. Analyzed data is also no tongue if you have no idea how to
explain it? So, this is big scope for every wise man. Same analyzed financial
statement's meaning may be different if interpretation is given by different account
managers. For example, If we open the financial statement of twelve five years plan
and we find that govt of India paid 1,10,000 Crores rupees for ending of poverty and
you can find different detail of it. But if new account manager links it with no. of
poor people, then we can see still 85% persons are poor. So, meaning of spending
of Rs. 1,10,000 crores will become opposite. So, interpretation is important part of
management accounting scope.
"Who and how is the accounting information used for decision making?", is the part
of scope of management accounting.
accounting for decision making encourages its development. Management
accounting’s main function is to collect accounting information which is useful for
different managerial functions like planning, organization, coordination and control.
Now, we are explaining other important functions of management accounting.
In 2005, Mr. A started his small business. He was well educated of management
accounting tools. By effective use of management accounting, he developed his
small business. Now, after 5 years, he is operating good company. Management
accounting’s basic functions like to study ratio analysis and cash and fund flow
statements can develop any small business like Mr. A. How is it possible?
One – Businessman can easily watch in which project he invested his cash and fund.
He can see whether its ROI and ROE is better than any other investment.
Second – He also makes good plan to reduce his investment in that project whose
return is not sufficient.
1st Planning and Forecasting Function:
In 2005, Mr. A started his small business. He was well educated of management accounting
tools. By effective use of management accounting, he developed his small business. Now,
after 5 years, he is operating good company. Management accounting’s basic functions like
to study ratio analysis and cash and fund flow statements can develop any small business
like Mr. A. How is it possible?
One – Businessman can easily watch in which project he invested his cash and fund. He can
see whether its ROI and ROE is better than any other investment.
Second – He also makes good plan to reduce his investment in that project whose return is
not sufficient.
Management accounting puts together all useful accounting information with comparable
past data for good communication with govt., bankers and investors.
Today, we will make clear the advantages of management accounting. After reading this,
you will surely study all concepts of management accounting more deeply for becoming
perfect in it.
Using of management accounting's budgetary control and capital budgeting tool, company
can easily succeed to reduce both operating and capital expenditures. After this, company
can reduce its price and then company will receive super profits.
For taking different managerial decisions, management accountant provides deep technical
reports with simple interpretations in which he mentions the facts of financial statements,
after this, company's management officers understand what is in financial statement and
how will they use this for company's progress.
To take business - critical decisions, now management accounting will become more powerful.
Global management accountants are coming for join on one plate-form for taking all business
critical decisions.
There are lots of decision which businessman has to take on the basis of tools of
management accounting. One of management accounting tool is decision accounting. It is
helpful to take main decision which we can explain following ways :
Financial policy is that tool of management accounting which is needed to make good
structure of capital mix We decide the proportion of share capital and loans in capital
structure. Financial and operating leverages are also its sub-tools.
1. Recorded Facts
2. Accounting Conventions
3. Accounting assumptions
For making financial statements, we accept going concern and measurement in
money assumption.
4. Personal Judgment
Balance Sheet
Preparation of balance sheet of company is very necessary, because Indian
Company law 1956 gives strict instruction about the format of balance sheet of a
company. A company can make balance sheet according to the form given in Part I
of schedule VI of company law 1956. A company can also make balance sheet
summary form, but it has to attach its schedule in which explanation of different
components are given. We are explaining different components of balance sheet of
company which will be helpful for students to prepare balance sheet of company.
You should remember balance sheet and its all components thoroughly. It can be
made either horizontal or vertical form. But total of assets should be equal to total
of liabilities. Here, I am explaining these components.
Assets are written in right side of company’s balance sheet. In these assets, we
include.
1. Fixed Assets
We will show all fixed assets which are purchased and used in business. This is the
long term expenditure of company. In these assets, we will include following.
I) Land
II) Building
V) Leasehold assets
VI) Development of property
VII) Vehicles
VIII) Live stocks
IX) Railway sidings
X) Equipment
We also include intangible assets in fixed assets head. Following are the main
examples of intangible assets.
I) Goodwill
II) Patents
III) Trade marks and design
Depreciation is charged on every fixed asset except land, because value of land will
increase after some time. Here, students are given advice that they should calculate
the value of net fixed assets, if different fixed assets are purchased or sold during
the year. The following table will be the part of working note.
2. Treatment of Investment in balance sheet
The following points must be kept in mind while you are showing investment in
balance sheet.
A) Current assets
Current assets will be shown in separate head and following components will be
included in it.
i) Stock in trade
ii) Work in progress
iii) Stock of stationary
vii) Cash in hand
viii) Bank balance
B) Loan and Advances
The amount which is given by company to others in the form of loan or advances
will be shown in asset side. Followings are its main examples.
e) Outside incomes.
4. Miscellaneous expenditures
Expenses which are not written off will be shown in asset side of balance sheet.
There is no market value of these expenses. Examples are given below.
i) Preliminary expenses
v) Development expenditure
If company suffers net loss after adjusting all reserves, then it will be shown in asset
side. This amount can be also deducted from reserves in liabilities side. That time,
we will not show it in asset side.
Liabilities are written in left side of company’s balance sheet. In these liabilities, we
include.
i) Capital reserves
iii) Other reserves
v) Sinking fund
3. Secured Loan
If any loan is taken by company after keeping any asset as security, then it will be
shown in secured loan head. Its detail is given below.
i) Debentures
4. Unsecured loan
Following will be the unsecured loan.
iii) Other loans
All liabilities which is payable within one year, will be included in current liabilities
head.
A) Current Liabilities
ii) Sundry creditors
iv) Outstanding expenditures
B) Provisions
ii) Proposed dividend
v) Other provisions
6. Contingent liabilities
These types of liabilities will not be shown in balance sheet. But a simple footnote is
made for its detail. Following may be the contingent liabilities of company.