Scope of Management Accounting
Scope of Management Accounting
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Financial Accounting:
Financial accounting though provides historical information but it is very useful for future planning and financial forecasting. It is an essential perquisite of any discussion of management accounting. Financial statements contain enough information that is used by management for decision-making. Management accounting contains only tools and techniques and it gets the data for interpretation and analysis mainly from financial accounting. Thus, without efficient financial accounting system, management accounting cannot be operative.
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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. Business executives depend heavily on accounting information in general and on cost information in particular because any activity of an organization can be described by its cost. They make use of various cost data in managing organizations effectively. Cost accounting is considered as the backbone of management accounting as it provides the analytical tools such as Budgetary Control, Standard Costing, Marginal Costing, Inventory Control, Operating Costing etc., which are used by management to discharge its responsibilities effectively.
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Financial Management:
Financial management is concerned with the planning and controlling of the financial resources of the firm. It deals with the raising funds and their effective utilization. Its main aim is to use the fund in such a way that the earning of the firm is maximized. Today finance has become the life blood of any business concern. Although, financial management has emerged as a separate subject, management accounting includes and extends to the operation of financial management also.
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Financial Statement Analysis:
The various parties (users) concerned with the financial statements may need information, which can be obtained by financial statement analysis and developing certain trends and ratios. A person can gain meaningful insights and conclusions about the firm with the help of analysis and interpretation of the information contained in financial statements. Different techniques have been developed which can be used for the proper interpretation and analysis of financial statements.
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Interpretation of Data :
The work of interpretation of financial data is done by the management accountant. H.: interprets various financial statements to the management. This interpretation of data gives 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.
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Management Reporting:
Clear informative, timely reports are essential management tools in reaching decisions that make the best use of firm’s resources. Thus, one of the basic responsibility of management accounting is to keep the management well informed about the operations of the business. 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. These reports may cover Profit and Loss statement, fund flow statement, cash flow statement, stock reports and reports on orders in hand, etc. These reports are helpful in giving a constant review of the working of the business.
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Quantitative techniques:
Modern managers believe that the financial and economic data available for managerial decisions can be more useful when analyzed with more sophisticated analysis and evaluation techniques. The techniques such as time series, regression analysis and sampling techniques are commonly used for this purpose. Further, managers also use techniques such as linear programming, game theory, queuing theory etc., in their decision-making process.
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Budgeting and Forecasting :
Budgeting means expressing the plans, policies and goals of the enterprise for a definite period in future. Budgetary control, controls the activities of the business through the operation of budget by comparing the actual with the budgeted figures, finding out the deviations, analyzing the deviations in order to pinpoint the responsibility and take remedial action so that adverse things may not happen in future. 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 activities.
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Inventory Control:
Inventory control is used to devote stock of raw materials, work-in-progress and finished products. Inventory has a special significance in accounting for determining correct income for a given period. The management should determine different levels of stocks, i.e., minimum stock level, maximum stock level, re-ordering level, danger level, etc. 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. Thus, the study of inventory control will be helpful for taking Managerial decisions.
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Tax Accounting:
In the present complex tax system, tax planning Is an important part of Management Accounting. Taxation plays an Important role in the profitability of a commercial concern. Therefore, it is Essential for a management accountant to have a complete knowledge of Business taxation. The Business Profit and tax thereon is to be ascertained As per the provision of taxation. The filing of tax returns and the payment Of tax in due time is exclusively the responsibility of management Accountant.
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Internal Audit:
The internal audit is a discipline of management Accounting. It makes arrangements for performance appraisal of the firms Various departments. Thus, a management accountant must possess Knowledge about the fixation of responsibilities and measurement of results.
Important links
- Equilibrium of an Industry in the short remand Long-Run
- Equilibrium of Monopoly- Short & Long Period Equilibrium
- Dumping- Meaning, Purpose, Price Determination etc.
- Monopoly- Definitions, Features, Classification etc.
- 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.
- Management Accounting- Definition, Nature & Characteristics
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