In real life, there is no such thing as second place. Either you are a winner, or you’re not.
--Your friends at LectureNotes

Note of MANAGERIAL ACCOUNTING by Tulasi Miriyala

  • Other
  • 9 Offline Downloads
  • Uploaded 1 year ago
Tulasi Miriyala
Tulasi Miriyala
0 User(s)
Download PDFOrder Printed Copy

Share it with your friends

Leave your Comments

Text from page-1

MANAGEMENT ACCOUNTING UNIT1 DEFINITIONS OF MANAGEMENT ACCOUNTING:- "Management accounting is the presentation of accounting information in such a way as to assist the management in creation of policy and the day to day operation of an undertaking". An analysis of the above definition shows that management needs information for better decisionmaking and effectiveness. The collection and presentation of such information come within the area of management accounting. Thus, accounting information should be recorded and presented in the form of reports at such frequent intervals, as the management may want. These reports present a systematic review of past events as well as an analytical survey of current economic trends. Such reports are mainly suggestive in approach and the data contained in them are quite up to date. NATURE OF MANAGEMENT ACCOUNTING:The term management accounting is composed of 'management' and 'accounting'. The word 'management' here does not signify only the top management but the entire personnel charged with the authority and responsibility of operating an enterprise. The task of management accounting involves furnishing accounting information to the management, which may base its decisions on it. The word 'accounting' used in this phrase should not lead us to believe that it is restricted to a mere record of business transactions i.e., book keeping only. It has indeed a 'macro-economic approach'. As it draws its raw material from several other disciplines like costing, statistics, mathematics, financial accounting, etc. FUNCTIONS OF MANAGEMENTACCOUNTING:Provides data:-Management accounting serves as a vital source of data for management planning. The accounts and documents are a repository of a vast quantity of data about the past progress of the enterprise, which are a must for making forecasts for the future. Modifies data:-The accounting data required for managerial decisions is properly compiled and classified. For example, purchase figures for different months may be classified to know total purchases made during each period product-wise, supplier-wise and territory-wise. Analyses and interprets data:-The accounting data is analyzed meaningfully for effective planning and decision-making. For this purpose the data is presented in a comparative form. Serves as a means of communicating:-Management accounting provides a means of communicating management plans upward, downward and outward through the organization. Facilitates control:-Management accounting helps in translating given objectives and strategy into specified goals for attainment by a specified time and secures effective accomplishment of these goals in an efficient manner.. Uses also qualitative information:-Management accounting does not restrict itself to financial data for helping the management in decision making but also uses such information which may not be capable of being measured in monetary terms. SCOPE OF MANAGEMENT ACCOUNTING: Financial Accounting:-Management accounting is mainly concerned with the rearrangement of the information provided by financial accounting. Hence, management cannot obtain full control and coordination of operations without a properly designed financial accounting system. Cost Accounting:-Standard costing, marginal costing, opportunity cost analysis, differential costing and other cost techniques play a useful role in operation and control of the business undertaking. Revaluation Accounting:-This is concerned with ensuring that capital is maintained intact in real terms and profit is calculated with this fact in mind.

Text from page-2

Budgetary Control:-This includes framing of budgets, comparison of actual performance with the budgeted performance, computation of variances, finding of their causes, etc. Inventory Control:-It includes control over inventory from the time it is acquired till its final disposal. Statistical Methods:-Graphs, charts, pictorial presentation, index numbers and other statistical methods make the information more impressive and intelligible. Interim Reporting:-This includes preparation of monthly, quarterly, half-yearly income statements and the related reports, cash flow and funds flow statements,scrap reports, etc. Taxation:-This includes computation ofincome in accordance with the tax laws, filing of returns and making tax payments. Office Services:-This includes maintenance of proper data processing and other office management services, reporting on best use of mechanical and electronic devices. Internal Audit:-Development of a suitable internal audit system for internal control. The Role of Management Accounting in the Organization: The purpose of management accounting in the organization is to support competitive decision making by collecting, processing, and communicating information that helps management plan, control, and evaluate business processes and company strategy. The interesting thing about management accounting is that it is rare to find an individual within a company with the title of “management accountant.” Often many individuals function as accountants within the organization, but these individuals typically operate as financial accountants, costs accountants, tax accountants, or internal auditors. However, the ability to develop and use good management accounting (which covers a lot more ground than the product costing done by cost accountants) is actually an important ability for many individuals, including finance professionals, operational and marketing managers, top-level executives, and information technologists. Generally, in a very large company, each division has a top accountant called the controller, and much of the management accounting that is done in these divisions comes under the leadership of the controller. On the other hand, the controller usually reports to the vice president of finance for the division who, in turn, reports to the division’s president and/or overall chief financial officer (CFO). All of these individuals are responsible for the flow of good accounting information that supports the planning, control, and evaluation work that takes place within the organization. As should be clear by now, the process of management accounting is the process of creating and using cost, quality, and time-based information to make effective decisions within the organization. Many people in the organization play a role in this process. The internal audit department has the responsibility of ensuring that controls are followed and operations are efficient. Financial accounting, while providing information to outsiders (such as creditors, investors, and government agencies), must also provide relevant financial reports to decision makers within the organization. Systems professionals have the responsibility to process information so that it is available to management in formats useful for decision making. Tax department experts make sure that the organization complies with the tax laws and pays no more than its legally obligated tax liability, but these people also participate in good planning, control, and evaluation of processes and decisions that will affect future tax expense exposure. Finally, cost accounting obviously plays a key role in tracking and reporting relevant product and service costs. Overall, the controller works to bring together all this information as an integral part of the planning, controlling, evaluating, and decisionmaking activities that take place throughout the organization.

Text from page-3

Technology and the Management Accountant: The goals of management accounting information provided to the management and executive teams inside the organization are quite different from the financial accounting information provided to groups outside the organization, such as investors, creditors, and regulators. You may even ask how information and performance measures regarding quality and time can be provided by a typical general ledger system that is limited to debits and credits of dollar amounts. This is a good question! For most of the twentieth century, management accountants have been able to successfully produce management accounting information using the general ledger system of financial accounting. This marriage of management accounting and financial accounting information systems worked as long as the goal of management accounting was strictly to track cost information. Now, however, the emergence of JIT, coupled with increased competition in a worldwide market, has forced most organizations to compete on issues of quality and timeliness, as well as cost. The problem is that it is very difficult to use a debit/credit system to track organizational performance regarding quality and time. Thankfully, computerized information systems, specifically database systems, have progressed to a point where it is economically feasible for organizations to track just about any kind of information. Now the real challenge for current and future management accountants is to organize the immense amount of data that can be provided to support decision making without creating information overload in managers and executives. In this process, management accountants should understand how to use the most current technology. Typically, developing knowledge and skills in computer technologies will require additional courses of study for the future business professional. The goal of the remainder of this book is to provide you with a framework for developing cost, quality, and time-based information that supports the management process. This framework must then be used with topnotch technology in order to provide information that truly adds competitive value to organizations! FUNCTIONS OF MANAGEMENT ACCOUNTANT:Planning:-He has to establish, coordinate and administer as an integral part of management, an adequate plan for the control of the operations. Controlling:-He has to compare actual performance with operating plans and standards and to report and interpret the results of operations to all levels of management and the owners of the business. Coordinating:-He consults all segments of management responsible for policy or action. Such consultation might concern any phase of the operation of the business having to do with attainment of objectives and the effectiveness of the organizational structures and policies. Other functions:  He administers tax policies and procedures.  He supervises and coordinated the preparation of reports to governmental agencies.  He ensures fiscal protection for the assets of the business through adequate internal control and proper insurance coverage.  He carries out continuous appraisal economic and social forces and the government influences, and interprets their effect on the business. THE ROLE OF ACCOUNTANT IN MODERN ORGANISATION Fields of Accounting Accounting can be broadly ramified along the following lines: Management Accounting Management accounting plays a major role in helping managers carry out their responsibilities. The reporting is flexible as the information is used by the internal management for decision making Okoye (2011). The reports are essentially tailored to the needs of individual managers. The

Text from page-4

management accountant thus supplies relevant, accurate, timely informationin a format that will aid managers in making decisions. In preparing, analyzing, and communicating such information, accountants work with individuals from all functional areas of an organization. Collins (2015) Who is an Accountant? According to Susan Davis (2015), an accountant is a person who performs financial functions related to the collection, accuracy, recording, analysis and presentation of a business, organization or company's financial operations. The accountant usually has a variety of administrative roles within a company's operations. In a smaller business, an accountant's role may consist of primarily financial data collection, entry and report generation. Middle to larger sized companies may utilize an accountant as an adviser and financial interpreter, who may present the company's financial data to people within and outside of the business. Generally, the accountant can also deal with third parties, such as vendors, custom. Job Titles of Accountants in Modern Business:                    Group Chief Finance Officer Group Finance Manager Financial Accounting & Reporting Officer Revenue Assurance & Credit Control Officer Treasury Accountant Management Accountant Cost Accountant Revenue Assurance Accountant Revenue Assurance Officer Chief Dealer –Foreign Exchange or Local Currency Finance Director Chief Accountant Internal Auditor Chief Internal Auditor Chief Operating Officer Chief Executive Officer Chief Information Officer Chairman Executive Director or Non–Executive director. MANAGEMENT ACCOUNTING AND FINANCIAL ACCOUNTING: Financial accounting and management accounting are closely interrelated since management accounting is to a large extent rearrangement of the data provided by financial accounting. Analyzing performance:-Financial accounting portrays the position of business as a whole. The financial statements like income statement and balance sheet report on overall performance or statues of the business. On the other hand, management accounting directs its attention to the various divisions, departments of the business and reports about the profitability, performance, etc., Data used:-Financial accounting is concerned with the monetary record of past events. It is a postmortem analysis of past activity and, therefore, out the date for management action. Management

Lecture Notes