Management accounting

MANAGEMENT ACCOUNTING, MANAGEMENT ACCOUNTING

AS INFORMATION SYSTEM

Presented By- Shikha Dadka Suchita Seraphim Vinita Lakra Ambarish Nafde Anup Gunjan Topno Avinash Kumar Reetuk Chakraborty Vinay Prateek B. Ho

Presentation Date- 22/10/13

Management Accounting:

• Management Accounting is comprised of two words management and accounting.

• It is to redesign accounting in such a way that it is helpful to the management in formation of policy, control of execution and appreciation of effectiveness.

• According to J. Batty: “Management Accounting is the term used to describe the accounting methods, systems and techniques which coupled with special knowledge and ability, assist management in its task of maximizing profits or minimizing losses.”

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Characteristics or Nature:

1) Providing Accounting Information:- The collection and classification of data is the primary function of accounting department. The information so collected is used by management for taking policy decisions.

2) Cause and Effect Analysis:- Financial accounting is limited to the preparation of the profit and loss account and finding out the ultimate result.

3) Use of Special Techniques and Concepts:- Management accounting uses special techniques and concepts to make accounting data more useful usually include financial planning and analysis, standard costing, budgetary control, marginal costing, project appraisal, control accounting, etc.

4) Taking Important Decisions:- Management Accounting helps in taking various important decisions. It supplies necessary information to the management which may base its decision on it.

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5) Achieving of Objectives:- The recording of actual performance and comparing it with targeted figures will give idea to the management about the performance of the various departments.

6) 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.

7) Supplies Information and not Decision:- The management accountant supplies information to the management. The decisions are taken by the top management.

8) 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.

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Functions of Accounting Management:• Planning and Forecasting:- It is to help management in

planning for short-term and long-term periods and also in making forecasts for the future.

• Financial Analysis and Interpretation:- Management accountant undertakes the job of presenting the financial data in a simple way. He analyses and interprets financial data in a simple way and presents it in a non-technical language.

• Facilitates Managerial Control:- Management accounting is useful in controlling performance. The actual performance is recorded and deviations are calculated. It enables the management to assess the performance of everyone in the organization.

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• Communication:- Management accounting establishes communication within the organization and with the outside world. The activities of the concern, are communicated to outsiders such as bankers, investors, creditors, government agencies, etc.

• Use of Qualitative Information:- The field of management accounting is not restricted to the use of monetary data only. It collects and uses qualitative information also.

• Co-ordinating:- Management accountant acts as a co-ordinator among different financial departments through budgeting and financial repo for smooth running of the concern.

• Supplying Information to All Levels of Management:- Every management level needs accounting information for decision making and policy execution. Management accountant feeds information to different levels of management so that further decisions are taken. 6

Difference between Management Accounting and Cost Accounting

۩ Ascertainment of cost & profitability.

۩ Allocation & absorption of overheads.

۩ Suggests the best alternatives.

۩ Deals with establishing the budget.

۩ Helps in the formulation of policies.

۩ Purposeful application of costing techniques.

۩ Considers other non cost factors.

۩ Deals with the requirements & use of principles.

Cost AccountingManagement Accounting

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Financial Accounting

• External( Investors, Government Authorities, Creditors)

• Primarily concerned with reporting for the company as a whole

• Nature of information is more objective, auditable, reliable, consistent and precise

• Concerned more about adequacy of disclosure

• GAAP, FASB and SEC are the main restrictors

• Internal( Managers of Business, Employees)

• Segment reporting is the primary emphasis

• It is more subjective, judgmental, viable, relevant and accurate

• Concerned more about how reports with affect employees behavior

• GAAP does not apply, but information should be restricted to strategic and operational needs

Management Accounting

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Limitations:

1. • Personal Bias

2.• Psychological Resistance

3.• Lack of Knowledge

4.• Intuitive Decisions

5.• Top Heavy Structure

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Management Accounting as Information System

It is a planned and organized approach to the transferring of intelligence within an organization for the organization of management.Management Accounting Information System needs to be designed to serve the decision-making needs of the various levels of management in the organization hierarchy.

Management Information System is an approach of providing timely, adequate and accurate information to the right person in the organization which helps in taking right decisions.

It is to identify problems and identify solutions to such problems.

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Objectives of Management Accounting Information System:

To provide information for costing services, products, and other objects of interest to management.

To provide information for planning, controlling, evaluation, and continuous improvement.

To provide information for decision making.

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How to Establish a Management Accounting Information System

• A management accounting information system can help businesses run better by providing timely information on internal operations.

• Managers need to have specific data on certain processes to control costs and to make sound decisions.

• Each company and industry has particular requirements. Retail management needs will be different from those of a distribution or a service-type business.

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• Step 1: List your needs. Put in writing your requirements and what you need an information system to do for you. That could be capturing certain information and reporting in a specific way and format. Prioritize your needs--what is crucial and what would be nice to have, but you can live without. Important needs of management are usually budgeting, cost accounting and specific variance analysis.

• Step 2: Search for computerized solutions that meet your needs at about 90 percent. The other 10 percent can be customized. You can usually find close matches when you consider systems that are designed for your industry. If you are a retail business, you may be able to find a point-of-sale system with all required back-office support software by focusing on computer systems specialized for retail firms and not wasting time with manufacturing solutions. Be focused in your search, otherwise you will end up confused and exhausted.

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• Step 3: Consider your budget. Mind your pocketbook. Accounting management information systems can be very expensive to purchase and maintain. Be sure you can afford the system that you need. You may have to scale back your expectations.

• Step 4: Detail a plan to implement a new management system. The plan should have a time line and be reasonable. Usually firms underestimate the time required to install and employ a new system. Don't forget to add training time for users to learn how to use all functions of a system.

• Step 5: Check in with employees and management. Be sure people are using and following the management system. To establish a new system, management and executives need to be completely behind the system. You need to have full commitment to make it work and to give you meaningful information.

• Step 6: Utilize the system to its best advantage. Ask for reports and other status on the system to be sure the management system is being employed with all its functionality.

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Doing Your Best Work

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