TECHNIQUES AND SCOPE OF MANAGEMENT ACCOUNTING�SUBJECT- MANAGEMENT ACCOUNTING

Presented by –Mrs Savita Mahendru

PG Department of Commerce & Management

Hans Raj Mahila Maha Vidyalaya

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�Tools or Techniques of Management Accounting�

Financial Planning

• A business requires finance. Financial planning involves determining both long-term and short-term financing objectives of the firm. Every firm has to decide on the sources of raising funds.
• The funds can be raised either through the issue of share capital or through raising loans. Again a decision is to be taken about the type of capital, equity share capital, or preference share capital.

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• When it decides to raise funds through loans, management is to decide the extent of borrowing, long-term, or short term. All these decisions are important for financing planning.

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Budgetary Control

• There are a number of the device which help in controlling. The most widely used device for management control is “Budget.”
• Budgetary control is a system that resorts to budget as a means of planning and controlling and coordinating different types of activities, like the production and distribution of goods and services as designed.

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Marginal Costing

• Marginal costing is helpful for the measurement of profitability of different lines of production. This technique helps in identifying the nature of costs like marginal costs (variable) and fixed costs.
• This is a method of costing which is concerned with changes in costs resulting from changes in the volume of production

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Historical Cost Accounting

• The statement of actual costs after they have been incurred is called Historical cost accounting.
• Historical cost accounting is a system of accounting that records all transactions at costs incurred as soon as they take place or on a date immediately after their occurrence.

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Decision Accounting

• One of the most important functions of top management is to make decisions

Decision making involves a choice from several alternatives.

• The decision is taken after studying the alternative data in terms of costs, prices, and profits furnished by management accounting and exercising the best choice after considering other non-financial factors. The objective is to maximize profit through the use of the best alternative method.
• The management accounting uses Marginal Costing techniques, Capital Expenditure Budget, and separation of production costs to achieve this end.

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Standard Costing

• Standard costing is an important tool of cost control, which is one of the main objectives of management accounting.
• Standard costing techniques compare the standard costs of materials, labor, and expenses incidental to production, which is predetermined, with the actual costs that have occurred in the course of carrying out production.
• It is the most effective technique available for controlling performances and costs.

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Analysis of Financial Statement

• The technique of financial analysis includes comparative financial statements, ratios, fund flow statements, Cash flow statements, and comparative financial statement analysis tools to management for decision making.
• The financial statements reveal the past performances of business in respect of dividend-paying capacity, nature of debts services, profit-earning capacity, and solvency position.
• Based on these past events, the future course of action is projected.

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Control Accounting

• It is not a separate accounting system. It consists of techniques of standard costing, budgetary control, control reports and statement, internal check, internal audit, and reports.
• It is in this field that the management has scope to display ingenuity in the’ analysis, interpretation, and presentation of information at all levels of management.

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Management Information System

• It has already been stated that the management accounting of an enterprise is to provide management and other operations as a basis of protective and constructive to management.
• The management accountant provides all these data and information relevant to the enterprise for the purpose.
• With the development of electronic devices for recording and classifying data, reporting to management has considerably improved. Feed-back of information can be used as control techniques

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Revaluation Accounting

• This is an important tool for management accounting.
• Revaluation or Replacement accounting revere to the maintenance of capital in real terms. This term is used to denote the methods employed for overcoming the problems connect with fixed asset replacement in a period of rising prices.
• It is a fact that a problem arises in connection with the replacement of fixed assets in terms of rising prices. It

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Statistical Techniques

• There is a large number of statistical and graphical techniques that are used in management accounting. Some common examples are the master chart, chart of sales and earnings, investment chart, etc.
• Ratio Accounting
• Ratio accounting signifies the technique and methodology of analysis and interpretation of financial statements using accounting ratios derived from such statements.
• Ratio accounting included trend analysis, comparative financial statements, ratio analysis, fund flow statements, etc..

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�Scope of Management Accounting�

• The scope of management accounting is so wide broad-based that it includes within its fold an analysis of all the aspects of modern accounting, which emphasis the common denominator of the functions of both management and accounting the making of an effective decision based on appropriate information

�Scope of Management Accounting

Cost Accounting

• Costing is a branch of accounting.
• Accounting for current, standard and prospective costs; analysis and communication of cost data at all levels of management with the organization. It is the process and technique of ascertaining cost. Planning, decision-making, and control are the basic managerial functions.
• The cost accounting system provides the necessary tools such as standard costing, budgetary control, inventory control, marginal costing, etc. for carrying out such functions efficiently.

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Scope of Management Accounting

• Financial Accounting
• Financial accounting is the general accounting which accounting relates to the recording of business transactions in the books of prime entry, posting them into respective ledger accounts, balancing them preparing a trial balance.
• Accounting for revenues, expenses, assets, liabilities, and net worth, together with the production of summary financial reports.
• Hence management accounting can not obtain full control and coordination of operations without a well designed financial accounting system.

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Scope of Management Accounting

Budgeting Forecasting

• Budgeting means expressing the plans, policies, and goals of the enterprise for a definite period in the future.
• Assembly and consolidation of budget; assistance to management personnel in translating operating plans into financial budgets; reporting and analysis of budget variances.
• Forecasting, on the other hand, is a prediction of what happened as a result of a given set of circumstances. Targets are set for different departments, and responsibility is fixed for achieving these targets.

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��Scope of Management Accounting��

Data Processing

• Recording accounting data, performing repetitive operations with these data, and preparing reports to form recoded data.

Internal Auditing

• Review and appraisal of accounting procedures and records to ascertain their reliability, conformity to prescribed practices, and adequacy to protect against loss of assets by fraud, waste, and other causes.
• Internal audit helps the management in fixing the responsibility of different individuals.

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Scope of Management Accounting

Tax Reporting

• This necessitates the computation of income by the Income Tax Act, preparing return statements and making payment of taxes when due Income statements are prepared, and tax liabilities are calculated.
• The management is informed about the tax burden from the central Government, State Government, and Local Authorities. This includes the computation of taxable income as per tax law, filing of returns, etc.

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�Scope of Management Accounting�

Financial Analysis

• Interpretation of accounting reports, analysis in financial terms of proposed projects, plans, and procedures; assistance to the management in interpretation and evaluation of financial data of all types.

Inventory Control

• It includes control over inventory from the time it is acquired until its final disposal.

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Scope of Management Accounting

Revaluation Accounting

• This is concerned with ensuring that capital is maintained intact in real terms, and profit is calculated with this fact in mind.

Statistical Methods

• Graphs, charts, pictorial presentations, index numbers, and other statistical methods make the information more impressive and intelligible.
• Other tools, such as time series, regression analysis, sampling technique, etc. are highly useful for planning and forecasting.

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�Scope of Management Accounting�

Taxation

• This includes the computation of income following the tax laws, filing of returns, and making tax payments.

Method and Procedures

• This includes maintenance of proper data processing and other office management services, reporting on the best use of mechanical and electronic devices.
• It provides statistical data to the various departments and undertakes special cost studies, cost estimations, reports on cost-volume-profit relationships, under the changing conditions of the organization.

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Scope of Management Accounting

Interim Reporting

• This includes the preparation of monthly, quarterly, half-yearly income statements and the related reports, cash flow and funds flow statements, scrap reports, etc.

Office Services

• This includes maintenance of proper data processing and other data processing and other office management services, reporting on the best use of mechanical and electronic devices.

Other Services

• This includes maintenance of proper data processing and other office management services, reporting on the best use of mechanical and electronic devices.

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THANK YOU!