Introduction:

Accounting is an ancient art as old as money itself, however, the role of accounting has been

changing with the economic and social developments. The traditional view of accounting as a

historical description of financial activities is no longer acceptable. Over a period of time new

dimensions have been added to the discipline of accounting. Until recently accounting was

regarded merely as an art of recording, classifying and summarising transactions and events

which are of a financial character. Later of, accounting was regarded as "the process of

identifying, measuring and communicating economic information to permit informed

judgements and decisions by users of the information." Accounting » now regarded as a

service activity the function of which is to provide quantitative information about economic

activities. The information is primarily financial in nature and is intended to be useful in

making economic decisions. Thus, accounting can be rightly termed as a service activity, ‘a

descriptive, analytical discipline, and an information system’. It includes several branches,

for example, financial accounting, cost accounting and management accounting. One of

the definitions of Management accounting says that it is the application of professional skills and

knowledge in the preparation of financial and accounting information in a manner in which it

will assist the internal management in the formulation of policies, planning, and control of the

operations of the firm. The basic function of management accounting is to help the management

make decisions. There is no fixed structure or format for it. Financial accounting, costing,

business analysis, economics, etc are some tools and techniques of management accounting. The

only need for management accounting is that the data should serve its purpose, which is helping

the management take important business decisions.

Meaning:

Management accounting also is known as managerial accounting and can be defined as a

process of providing financial information and resources to the managers in decision making.

Management accounting is only used by the internal team of the organization, and this is the

only thing which makes it different from financial accounting. In this process, financial

information and reports such as invoice, financial balance statement is shared by finance

administration with the management team of the company. Objective of management

accounting is to use this statistical data and take a better and accurate decision, controlling the

enterprise, business activities, and development. Financial accounting is the recording and

presentation of information for the benefit of the various stakeholders of an organization.

Management accounting, on the other hand, is the presentation of financial data and business

activities for the internal management of the organization.

CHARACTERISTICS OF MANAGEMENT ACCOUNTING:

1. Providing Accounting Information:

Management accounting is based on accounting information. The collection and

classification of data is the primary function of accounting department. The information

recollected is used by the management for taking policy decisions. Management accounting

involves the presentation of information in a way it suits managerial needs. The accounting

data is used for reviewing various policy decisions. Management accounting is a service

function and it provides necessary information to different levels of management.

2. Cause and Effect Analysis:

Financial accounting is limited to the preparation of profit and loss account and finding out

the ultimate result. i.e., profit or loss Management accounting goes a step further. The cause-

and-effect relationship is discussed in management accounting. If there is a loss, the reasons

for the loss are probed. If there is a profit. the factors directly influencing the profitability are

also studied. The figures of profits are compared to sales, different expenditures, current

assets, interest payables, share capital, etc. So, the study of cause-and-effect relationship is

possible in management accounting.

3. Use of Special Techniques and Concepts:

Management accounting uses special techniques and concepts to make accounting data more

useful. The techniques usually used include financial planning and analysis, standard costing,

budgetary control, marginal costing. project appraisal, control accounting, etc. The type of

technique to be used will be determined according to the situation and necessity.

4.Taking Important Decisions:

Management accounting helps in taking various important decisions. It supplies necessary

information to the management which may base its decisions on it. The historical data is

studied to see its possible impact on future decisions. The implications of various alternative

decisions are also taken into account while taking important decisions.

5. Achieving of Objectives:

In management accounting, the accounting information is used in such a way that it helps in

achieving organisational objectives. Historical data is used for formulating plans and setting

up objectives. The recording of actual performance and comparing it with targeted figures
will give an idea to the management about the performance of various departments. In case

there are deviations between the standards set and actual performance of various departments

corrective measures can be taken at once. All this is possible with the help of budgetary

control and standard costing.

6. No Fixed Norms Followed:

In financial accounting certain rules are followed for preparing different accounting books.

On the other hand, no, specific rules are followed in management accounting. Though the

tools of management accounting are the same but their use differs from concern to concern.

The analysis of data depends upon the person using it. The deriving of conclusions also

depends upon the intelligence of the management accountant. Every concern uses the figures

in its own way. The presentation of figures will be in the way which suits the concern most.

So, every concern has its own rules and by-rules for analysing the data.

7. Increase in Efficiency:

The purpose of using accounting information is to increase efficiency of the concern. The

efficiency can be achieved by setting up goals for each department or section. The

performance appraisal will enable the management to pin point efficient and inefficient spots.

An effort is made to take corrective measures so that efficiency is improved. The constant

review of working will make the staff cost-conscious. Everyone will try to control cost on

one's own part.

8.Supplies Information and not Decision:

The management accountant supplies information to the management. The decisions are to be

taken by the top management. The information is classified manner in which it is required by
the management. Management accountant is only to guide and not to supply decisions. The

data is to be used by management for taking various decisions. How is the data to be utilised'

will depend upon the calibre and efficiency of the management.

9. Concerned with Forecasting:

The management accounting is concerned with the future. It helps the management in

planning and forecasting. The historical information is used to plan future course of action.

The information is supplied with the object to guide management for taking future decisions.

Advantages of Management Accounting:

1. Better Decision Making: 

Management accounting helps in viable decision making for an association. It supplies

generally required data as outlines, tables, and conjectures to the supervisory group. This data

empowers supervisors in performing nitty gritty investigation and taking the right choices.

2. Increment Business Efficiency:

It targets expanding the general productivity of the business. The management accounting

utilizing logical strategies assesses the exhibition of the business and distinguishes deviations

and issues. It goes to restorative lengths appropriately to eliminate deserts that upgrade

business usefulness.

3. Raises Profitability: 

Management accounting helps with expanding business benefits. It empowers in cutting the

additional use engaged with business exercises utilizing capital planning and monetary

control. Organizations can diminish the expense of their items and procure better benefits for

them.
4. Spurs Employees: 

The management accounting fills in as an apparatus for inspiring representatives. It gets

ready and presents occasional reports in regards to activities of the business to the

supervisory crew. Administrators are effectively ready to assess the exhibition of

representatives and make a choice with respect to advancing or downgrading them in a like

manner.

5. Cost Transparency: 

Straightforwardness of cost is one more significant pretended by the management accounting.

It appropriately screens all cash inflows and surges of business and guarantees that there is no

abuse of cash. The management accounting works intimately with the IT office to guarantee

that all costs are inside the spending plan.

6. Dependability: 

The data given by the management accounting is dependable as it involves legitimate logical

apparatuses for investigation purposes. Precise and real data accessible to administrators

empowers them to the successful administration of business issues.

7. Assist in Goal Completion:

The aim of the report presented by the management accountant is to help in achieving a long-

term goal. It becomes possible to achieve the goal because of the comprehensive information

of the management accountant, which shows the strong and weak points of the corporation.

Furthermore, this information helps to discover the weakness and takes measures to

overcome them.
Disadvantages of Management Accounting:

1. In view of Financial and Cost Records: 

Both monetary and cost accounting data are utilized in the management accounting

framework. The exactness and legitimacy of the board account are generally founded on the

precision on the off chance that monetary and cost records are kept up with. These records

decide the Strength and shortcomings of the management accounting.

2. Individual Bias: 

The examination and understanding of financial reports are completely relying on the ability

of the examiner and mediator. Consequently, individual biases and inclination of an

individual can influence the objectivity and viability of the ends and suggestions.

3. Absence of Knowledge and Understanding of the Related Subjects: 

Monetary accounting, cost accounting, insights, financial aspects, brain research and social

science are the connected subjects of management accounting. The association can determine

more advantages of management accounting in the event that the administration bookkeeper

has intensive information over related subjects. While possibly not along these lines, the

achievement of the management accounting framework is problematic.

4. Gives just Data: 

Under the management accounting framework, numerous options are created to take care of

an issue and submitted before the administration. Out of the numerous options accessible, the
administration can choose any of the options or even dispose of every one of them.

Subsequently, the management accounting can give information and not recommend any

game-plan.

5. Inclination to Intuitive Decision Making: 

Logical choices can be taken with the assistance of utilizing management accounting

methods. In any case, the greater part of the administration bookkeeper and high-level chiefs

favour their previous experience and instinct in settling on business choices. The explanation

is that instinctive navigation is exceptionally straightforward and simple.

6. Exorbitant Installation: 

The expense of the establishment of the management accounting framework is exceptionally

high. Consequently, a private venture association cannot bear the expense of such an

establishment. Additionally, the utility of this framework is confined distinctly to large and

complex associations.

7. Protection from Change: 

The establishment of the management accounting framework gets a few changes in the

hierarchical setup and accounting practice. The workforce concerned may oppose such

changes except if they are getting certainty.

Function of Management Accounting:

1. Forecasting and Planning:

Management accounting is necessary to provide meaningful information and data for short-term

and long-term planning and forecasts for business operations.

2. Organizing:

It helps the company in organizing its human and non-human activities. Using data, they prepare

budgets and ascertain individual cost centres and then delegate the budget to each different

centre. It tries to improve the finance and accounting function of the business on modern lines.

3. Performance Variances:

Management accountants check actual work done with common goals to analyse whether it is

accomplished. They control the organization’s performance by utilizing budgetary control,

standard costing, cash and fund flow statements, accounting ratios, cost reduction programs,

return on investment, and analyses of capital expenditure programs.

4. Coordinating:

Management accounting offers various coordinating tools such as financial analysis, budgeting,

financial reporting, analyses, interpretation, etc. These tools enhance the efficiency of the

organization and increase its profits. It assists the management by analysing the cost and financial

accounts by preparing budgets, evaluating standard costs, and analysing variances in cost.

5. Communication:
Management accounting is an essential medium of communication. Different type of information

is required at various management (top, middle, and lower). The top management requires precise
information at a relatively long duration, whereas the middle needs data at regular intervals, and

lower management is interested in comprehensive information at short- intervals. Apart from this,

they also share the data and the company’s progress with external users and other parties by

publishing accounts and returns on investment (ROI)

6. Analyse and Interprets Data

Management accountant analyses the information and presents it to management and top

authorities. They also add suggestions and comments in a non-technical way so they can easily

interpret and find results. Analysing the data is to plan appropriately and make effective decisions

for the same data presented in the form of ratios, comparative statements, and projected trends.

7. Business Asset Protection:

The management accountant is responsible for the funds required to maintain, replace and repair

the fixed asset available in the organization. It is necessary for the smooth and uninterrupted flow

of production, which may adversely affect the company’s profits. The finance required for fixed

asset insurance also comes under the management accounting function. 

8. Tax policies:
The management accountant is responsible for tax payment, whether a value-added tax, income

tax, or any other tax to the state, local or federal government. They prepare accurate tax payment

reports to show to various authorities. Moreover, maintain provisions for taxation and make

timely payments of taxes as per Income Tax Act to avoid penalties of taxes.

9. Decision Making
Management accounting provides accounting data and statistical information, which aids in the

effective decision-making required for the successful survival of the business. Using data, they
determine the long-term and the short-term capital and suggest capitalization required for the

business. Also, it evaluates additional capital expenditure proposals and their effect on the return

on profit and losses.

10. Other Functions:

Apart from the above functions, the management accountant provides helpful information to

various functional authorities. They do not restrict their data to organizations’ financial

information; they also use other sources such as surveys, engineering records, statistical

compilations, etc. Additionally, data collected by them helps in the planning to formulate policies

and other decisions related to cash inflow, outflow, product launch, expansion, and so on.

SCOPE OF MANAGEMENT ACCOUNTING:

Management accounting is a new approach to accounting. It provides techniques for the

interpretation of accounting data. It also helps in developing realistic approach to future

course of action. The main aim is to help management in its functions of planning, directing

and controlling. Management accounting 15 related to a number of fields. At the Seventh

International Conference of Accountants held in Amsterdam in 1957, the main emphasis was

on Cost Accounting, Budgetary Control, Materials Control, Interim Reporting, Determination

of the most efficient and economical accounting system, Special cost and economic studies

and assisting management in interpreting financial data.

The following facts of management accounting are of a great significance and form the scope

of this subject.

1. Financial Accounting:
Financial accounting deals with the historical data. The recorded facts about an organisation

are useful for planning the future course of action. Though planning is always for the future

but still it has to be based on past and present data. The control aspect too is based on

financial data. The performance appraisal is based on recorded facts and figures. So,

management accounting is closely related to financial accounting.

2. Cost Accounting:

Cost accounting provides various techniques for determining cost of manufacturing products

or cost of providing service. It uses financial data for finding out cost of various jobs,

products or processes. The systems of standard costing, marginal costing, differential costing

and opportunity costing are all helpful to the management for planning various business

activities.

Cost accounting also helps in finding out economical and non-economical fields of

production. The efficiency of different departments is judged by setting up standards and

finding out variances. So, cost accounting is an essential part of management accounting.

3. Financial Management:

Financial management is concerned with the planning and controlling of the financial

resources of the firm. It deals with raising of funds and their effective utilisation. its main aim

is to use business funds in such a way that earnings are maximised. Finance has become so

much important for every business undertaking that all managerial activities are connected

with it. Financial viability of various propositions influence decisions on them. Although.

financial management has emerged as a separate subject, management accounting includes

and extends to the operation of financial management also.

4. Budgeting and Forecasting:

Budgeting means expressing the plans, policies and goals of the enterprise for a definite

period in future. The targets are set for different departments and responsibility is fixed for

achieving these targets. The comparison of actual performance with budgeted ignores will

give an idea to the management about the performance of different departments. Forecasting,

on the other hand. is a prediction of what will happen as a result of a given set of

circumstances. Forecasting is a judgement whereas budgeting is an organisational object.

Both budgeting and forecasting are useful for management accountant in planning various

acclivities.

5. Inventory Control:

Inventory is used to denote stock of raw materials, goods in the process of manufacture and

finished products. Inventory has a special significance in accounting for determining correct

income for a given period. Inventory control is significant as it involves large sums. The

management should determine different levels of stocks. i.e., minimum level, maximum

level, re-ordering level for inventory control. The control of inventory will help in controlling

costs of products. Management will need effective inventory control for controlling stocks.

Management accountant will guide management as to when and from where to purchase and

how much to purchase. So, the study of inventory control will be helpful for taking

managerial decisions.

6. Reporting to Management:

One of the functions of management accountant is to keep the management informed of

various activities of the concern so as to assist it in controlling the enterprise The reports are

presented in the form of graphs, diagrams, index numbers or other statistical techniques so as
to make them easily understandable. The management accountant sends interim reports to the

management and these reports may be monthly, quarterly. half-yearly. The reports may cover

profit and loss statement, cash and fund flow statements, stock reports, absentee reports and

reports on orders in hand, etc. These reports are helpful in giving a constant review of the

working of the business.

7. Interpretation of Data:

The management accountant interprets various financial statements to the management.

These statements give an idea about the financial and earning position of the concern. These

statements may be studied in comparison to statements of earlier periods or in comparison

with the statements of similar other concerns. The significance of these reports is explained to

the management in a simple language. If the statements are not properly interpreted then

wrong conclusions may be drawn. So, interpretation is as important as compiling of financial

statements.

8. Control procedures and Methods:

Control procedures and methods are needed to use various factors of production in a most

economical way. The studies about cost, relationship of cost and profits are useful for using

economic resources efficiently and economically.

9. Internal Audit:

Internal audit system is necessary to judge the performance of every department. The actual

performance of every department and individual is compared with the predetermined

standards. Management is able to know deviations in performance. Internal audit helps

management in fiving responsibility of different individuals.

10. Tax Accounting:

In the present complex tax systems, tax planning is an important part of management

accounting. Income statements are prepared and tax liabilities are calculated. The

management is informed about the tax burden from central government, state government

and local authorities. Various tax returns are to be filed with different departments and tax

payments are to be made in time. Tax accounting comes under the purview of management

accountant's duties.

11. Office Services:

Management accountant may be required to control an office. He will be expected to deal

with data processing. filing. copying. duplicating. communicating, etc. He will also be

reporting about the utility of different office machines.