Management Accounting

Management Accounting is comprised of two words ‘Management’ and Accounting’. It is the study of managerial aspect of accounting. It is the presentation of accounting information in such a way as to assist management in the creation of policy and day-to-day operation of an undertaking. Thus, it relates to the use of accounting data collected with the help of financial accounting and cost accounting for the purpose of policy formulation, planning, control and decision-making by the management. Some leading definitions of management accounting are as follows:

1. “Management accounting is concerned with accounting information that is useful to management”. -R.N. Anthony
2. “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”.-J. Batty
3. “Management accounting is the adaption and analysis of accounting information and its diagnosis and explanations in such a way as to assist management”.-T.G. Rose.

Nature and Characteristics of Management accounting

1. Technique of Selective Nature :

   It is a technique of selective nature. It takes into consideration only that data from the income statement and position statement (Balance Sheet) which is relevant and useful to the management. Only that information is communicated to the management which is helpful for talking decisions on various aspects of the business.

2. Concerned with Future :

   Management accounting unlike the financial accounting deals with the forecast with the future. It helps in planning the future because decisions are always taken for the future course of action.

3. Providing Accounting Information :

   It is based on accounting information. The collection and classification of data is the primary function of accounting department. The information so collected is used by the management for taking policy decisions. It involves the presentation of information in away it suits managerial needs. It is a service function and it provides necessary information to different levels of management.

4. Taking Importance Decisions:

   Management accounting helps in taking various important decisions. It supplies necessary information to the management on the basis of which decisions are taken. The historical data is studied to see its possible impacts on future decisions. The implications of various alternative decisions are also taken into account while taking important decisions.

5. 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. 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.

6. No Specific Rules 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 differ from 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 has its own rules and by-rules for analyzing the data.

7. No get Formats for Information :

   It does not provide information in a prescribed preform like that of financial accounting. It provides the information to the management in the form which may be more useful to the management in taking various decisions on the various aspects of the business.

8. Analysis of Different Variables:

   It helps in analyzing the reasons as to why the profit or loss is more or less as compared to the past period. Moreover, it tries to analyses the effect of different variables on the Profits and Profitability of the concern.

9. Provides Data and not the Decisions:

   The management accountant is not taking any decision but provides data which is helpful to the management in decision-making. It can inform but cannot prescribe. It is just like a map which guides the traveler when he will be if he travels in one direction or another. Decisions depend on the efficiency and wisdom of the management.

Important links

• Equilibrium under Discriminating Monopoly
• Price-Discrimination- Degree & Essential Conditions
• Price determination under Oligopoly
• Kinked Demand Curve
• Monopolistic competition- Price & Output Determination
• Wages- Meaning, Causes, Marginal theory etc.

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