what is management accounting?
management accounting
Meaning and definition of management according
The terms 'management according' (consist of two words management and according in which is used to describe the modern concept of according as a tool of management in contract to the conventional accountants prepared to show the financial position of a concern. It is the study of managerial convectional accounts)' prepared to sh
Managerial accounting provides the essential data which the organizations are actually run.
The above figure show how accounting provides information to the managements. The sources of information for management accounting are cost data and reports as well as financial statements and information as suppliers by cost and financial accounting. The information provides by management accounting are used by management for carrying out it different activities like planning, organizing decision-making, coordination, controlling
t. lucey defines: the management accounting is primary concerned with the data gather analysis, processing interpreting and communication the resulting information for use within the organization so that management can more effectively plan, make decision and control operation".
In the words of j.batty "management accounting is the term used to describe accounting methods', systems the techniques which couple with special knowledge and ability, assists managements in it task for necessary or minimizing losses."
From the above definitions, it is cleared that management accounting is concerned with assisting the managements to carry out its activities. It relies on cost and financial accounting for necessary information.
Use of management accounting information
The main aim of management accounting is to assists the management in carrying out various functions. The information that has been prepared for the aid of management is used for the following managerial functions.
1. Planning: planning is a process of deciding in advance the future course of action. A plan may be made for a particular segment or for origination as a whole. It involves making decision. The management accounting information helps to analyze the consequence of each alternative in the decision making process.
2. Implementation: it is an action plan that has been developed to bring the plan into action. It includes the charge of previous plan appropriately to adjust for the new situation.
3. Control: it is a process of ensuring that the employees perform properly. Accounting information is uses in the control process as a means of communication, motivation and appraisal.
What is Scope of management accounting?what is management accounting
The scope of management accounting is very wide and bride based as it includes a variety of aspects of business operation. The following are some of the areas of specialization includes within the scope of management accounting.
1. Financial accounting: it records all business transaction and profit and loss accounts os make to show the results of the business and balance sheet to show the financial position. This in turn forms the basis for analysis and interpretation for providing meaningful data to the managements. Thus, financial accounting comes under the scope of management accounting.
2. Cost accounting: costing refers to the classification, recording, and allocation of expenditures for the determination of the cost of products or services and ensuring the management to control over the same. This includes the determination of cost of every order, job, contract, process or unit as required. Such information plays an important role for the management in carrying out its activities.
3. Forecasting and budgeting: this refers to the formulation of budget and forecast with the help of operating and other department of a business concern. The ultimate success of any budgeting depends on the proper setting of target figures in the budget and the actual realigning of the same in practice.
4. Cost control techniques: these serve as effective tools for comparing the actual results with the predetermined figures determined in budgets. They greatly help in bringing the budget into operating plans.
5. Statistician data: it is concerned with the supply of necessary statistical data and particular needs by variation departments of the business concern. Te includes as stated earlier, statistical compaction of case studies, engineering records, and minutes of meeting, special surveys and many other business documents.
6. Taxation: These necessitates the computations of profit in according with the provision of the incomes tax act and also prompt filing of return periodically and payment of taxes.
7. Office services: this mainly relates to the maintenance of data processing and other office management services, stenciling and duplicating dealing of involves and out ways mails etc.
Objective and function of management accounting
The main objectives and functions of management accounting are summarized as under:
1. To help in formulating plans: management accounting assists management in planning the activities of the business. Planning is deciding in advance what is to help done, when it it to be done, how it is to be done and by whom it is to be done. Planning is based on facts re provides by past accounts on which on which forecast of future transactions is made.
2. To help in the interpretation of financial information: management accountants present the accounting information in an intelligent and simple manner. This will be managements in interpreting the financial data, evaluating alternatives sources of actions available and guiding it nine taking decisions to have the most desired financial results.
3. To help controlling performance: under management accounting, the actual performance is compared it the targets, plants, standards and deviations re analyzed thus, management accounting helps in controlling the performance and take suitable actions in order to concerned the adverse deviations by revising the budget if needed.
4. Helps in solving business problems: management accountant recommends the use of budget, reason ability accounting cost control techniques and internal financial control. These all needs the intensive study of the organization saturation. In turn to rationalize the organization structure.
5. Helps in organization: the management accounting recommended the use of budgeting, responding accounting, cost control techniques and internal financial control. These all needs the intensive study of the organization structures. In turn, it helps to rationalize the organization structures.
6. Helps in coordination operations: management accounting helps management in coordinating the activities of the concern by operating functions budget at first coordination the whole activities of the concerned by interesting all functional budgets into one knows as master budget. Thus, management accounting is a useful tool in coordinating the various operations f the business.
7. Helps in motivating employees: management accounting helps to increase the effectiveness of the organizations and motivations the member of the organization. This is done by selling goals planning the best and economics course of actions and measuring the performance.
8. Communicating up-to-data information: management needs information for taking decision and for evaluating performance of the business. Such information can be made available to the different level of management by means of reports, which are an integral part of the management accounting. This helps taking suitable actions for the purposed of control.
Tools and techniques used in management accounting
Management accounting suppliers information to the managements so that its functions, i.e. planning organization, staffing, direction and control and be discharged sincerely and faithfully. For doing these the management accountant uses the following tools and techniques.
1. Financial planning: necessary for the concern to achieve its primary objectives. It includes determining objective of the enterprise, formulating financial policies and developing the financial procedure to achieve the objectives.
2. Analysis of financial statements: finical statements analysis is an attempt to determine the significance and meaning of the financial statement. Te helps to forecast the pro-cast the prospects for future earnings, ability to pay interest and debt maturities bad profitability of a sound divided policy. The techniques of such analysis are comparative financial statements, trend analysis, funds flow statement, cash flow statement and ration analysis.
3. Historical cost accounting: the historical cost accounting cost accounting provides past data to the management relating to the cost of each job, process and department so that comparison may be made with the standard cost. Such comparison may be helpful to the management for cost control and for future planning.
4. Standard costing: standing costing is the establish of standard cost most efficient operating conditions, comparison of actual with the standard, calculation and analysis of various to know the reason and to pinpoint the responsibility. It helps to take remedial actions so that adverse things may not repeat again. This is necessary to have cost control.
5. Budgetary control: a management accountant uses the tools of budgetary control for planning and controlling various nativities of the business. Budgetary control is an important technique of directing business operations in a desired direction i.e. to achieve a satisfactory return on investment.
6. Marginal costing: a management accounts uses the techniques of marginal costing, differential costing and break-event analysis for cost control, decision-making and profit maximization.
7. Funds flow statement: a management accounts uses the techniques of funds flow statement in order to analysis the changes in the financial condition of a business enterprise between two periods. It tells where from the funds are coming in the business and how these are being used.
8. Decision accounting: wherever there are different alternative of doing a particular work, in becomes necessary to select the best out of all alternatives. This required decision on the part of the management. Management accounting helps the management through the techniques of marginal costing, capital budgeting, differential costing to select the best alternative which will maximize the profit of the business.
9. R evaluating accounting: a management accountant through this technique assures the maintenance and preservation of the capital of the enterprise. It brings into accounts the impact of changes in the prices on the preparations of the financial statements.
10. Statistical accounting: a management accounting uses various statically and a graphical technique to make the information more meaningful and present the same in such a form that helps the management in decision-making. The techniques used are master chart, chart of sales and earnings, investment chart, linear programming, statistical quality control etc.
11. Communicating: management's accountant progress necessary reports for providing information to different levels of management by proper selection of data to be presented, organization of data or selecting the appropriate methods of reporting.
Limitations of management accounting
Management accounting as any other branch of knowledge, is not free from limitation through the emergence of management accounting has greatly improves that management performance, yet is has to face certain alleges and constrains conditioned mostly by the external factors. Thus factor tats restrict the effectiveness of management accounting are discussed bellows:
1. Continuance of intuition decision-making: management accounting is supposed to eliminate the intuitive decision-making process of management and replace it with scientific decision-making unfortunate, much management is promoting to take the easy and simple path of intuition decision making rather than the difficult but scientific decision-making process in the day-to-day managements.
2. Broad-based scope: the scope of management accounting is wide and broad-based and this creates many difficulties in the implementation process. It is easy to record, analyze, and interpret and historical event converted into terms in a most objective manner. Boat it will be difficult to perform the same functions in respects of future and quantifiable tuition in the light of the past records.
3. Based on other accounting: managements accounting is based on financial accounting and cost accounting. The effectiveness of management accounting largely depends on the effectiveness of these accounting.
4. Evaluation stage: Management's accounting is a new discipline and a growing subject too. It is still in the infancy stage and under growing evolutionary process naturally, it faces certain obstacles before achieving performance and finality, this necessitate shaping of the analytically tools and improving of techniques for removing the air of double as regards uncertainly in their applications.
5. No an alternative to the management: managements accounting is not an alternatives to the managements. It just helps the management to carry out its activities. This is not an end, rather a means only.
6. Cost installation: for installation of a system of managements accounting in a business concerns, an elaborate organization and a large number are essential. This in turn increases the cost due to which only large-scale organization can affected to install it.
Differences between cost and management accounting
5. Helps in organization: the management accounting recommended the use of budgeting, responding accounting, cost control techniques and internal financial control. These all needs the intensive study of the organization structures. In turn, it helps to rationalize the organization structures.
6. Helps in coordination operations: management accounting helps management in coordinating the activities of the concern by operating functions budget at first coordination the whole activities of the concerned by interesting all functional budgets into one knows as master budget. Thus, management accounting is a useful tool in coordinating the various operations f the business.
7. Helps in motivating employees: management accounting helps to increase the effectiveness of the organizations and motivations the member of the organization. This is done by selling goals planning the best and economics course of actions and measuring the performance.
8. Communicating up-to-data information: management needs information for taking decision and for evaluating performance of the business. Such information can be made available to the different level of management by means of reports, which are an integral part of the management accounting. This helps taking suitable actions for the purposed of control.
Tools and techniques used in management accounting
Management accounting suppliers information to the managements so that its functions, i.e. planning organization, staffing, direction and control and be discharged sincerely and faithfully. For doing these the management accountant uses the following tools and techniques.
1. Financial planning: necessary for the concern to achieve its primary objectives. It includes determining objective of the enterprise, formulating financial policies and developing the financial procedure to achieve the objectives.
2. Analysis of financial statements: finical statements analysis is an attempt to determine the significance and meaning of the financial statement. Te helps to forecast the pro-cast the prospects for future earnings, ability to pay interest and debt maturities bad profitability of a sound divided policy. The techniques of such analysis are comparative financial statements, trend analysis, funds flow statement, cash flow statement and ration analysis.
3. Historical cost accounting: the historical cost accounting cost accounting provides past data to the management relating to the cost of each job, process and department so that comparison may be made with the standard cost. Such comparison may be helpful to the management for cost control and for future planning.
4. Standard costing: standing costing is the establish of standard cost most efficient operating conditions, comparison of actual with the standard, calculation and analysis of various to know the reason and to pinpoint the responsibility. It helps to take remedial actions so that adverse things may not repeat again. This is necessary to have cost control.
5. Budgetary control: a management accountant uses the tools of budgetary control for planning and controlling various nativities of the business. Budgetary control is an important technique of directing business operations in a desired direction i.e. to achieve a satisfactory return on investment.
6. Marginal costing: a management accounts uses the techniques of marginal costing, differential costing and break-event analysis for cost control, decision-making and profit maximization.
7. Funds flow statement: a management accounts uses the techniques of funds flow statement in order to analysis the changes in the financial condition of a business enterprise between two periods. It tells where from the funds are coming in the business and how these are being used.
8. Decision accounting: wherever there are different alternative of doing a particular work, in becomes necessary to select the best out of all alternatives. This required decision on the part of the management. Management accounting helps the management through the techniques of marginal costing, capital budgeting, differential costing to select the best alternative which will maximize the profit of the business.
9. R evaluating accounting: a management accountant through this technique assures the maintenance and preservation of the capital of the enterprise. It brings into accounts the impact of changes in the prices on the preparations of the financial statements.
10. Statistical accounting: a management accounting uses various statically and a graphical technique to make the information more meaningful and present the same in such a form that helps the management in decision-making. The techniques used are master chart, chart of sales and earnings, investment chart, linear programming, statistical quality control etc.
11. Communicating: management's accountant progress necessary reports for providing information to different levels of management by proper selection of data to be presented, organization of data or selecting the appropriate methods of reporting.
Limitations of management accounting
Management accounting as any other branch of knowledge, is not free from limitation through the emergence of management accounting has greatly improves that management performance, yet is has to face certain alleges and constrains conditioned mostly by the external factors. Thus factor tats restrict the effectiveness of management accounting are discussed bellows:
1. Continuance of intuition decision-making: management accounting is supposed to eliminate the intuitive decision-making process of management and replace it with scientific decision-making unfortunate, much management is promoting to take the easy and simple path of intuition decision making rather than the difficult but scientific decision-making process in the day-to-day managements.
2. Broad-based scope: the scope of management accounting is wide and broad-based and this creates many difficulties in the implementation process. It is easy to record, analyze, and interpret and historical event converted into terms in a most objective manner. Boat it will be difficult to perform the same functions in respects of future and quantifiable tuition in the light of the past records.
3. Based on other accounting: managements accounting is based on financial accounting and cost accounting. The effectiveness of management accounting largely depends on the effectiveness of these accounting.
4. Evaluation stage: Management's accounting is a new discipline and a growing subject too. It is still in the infancy stage and under growing evolutionary process naturally, it faces certain obstacles before achieving performance and finality, this necessitate shaping of the analytically tools and improving of techniques for removing the air of double as regards uncertainly in their applications.
5. No an alternative to the management: managements accounting is not an alternatives to the managements. It just helps the management to carry out its activities. This is not an end, rather a means only.
6. Cost installation: for installation of a system of managements accounting in a business concerns, an elaborate organization and a large number are essential. This in turn increases the cost due to which only large-scale organization can affected to install it.
Differences between cost and management accounting
Different between financial and management accounting
Different between Social responsibility accounting
It is the discipline of accounting, which is related with communication, measurement and contribution made by the business organization to the society where the organization are born and grown. It is the process of accounting for social responsibility aspects of a business. It is related with social cost incurred by the organization and social benefits earned by it and reporting thereof. Example of contribution given by the business enterprises is environmental contribution, employment generation, financial aid to the society, providing residential accommodation and low cost education to the weak sections of the society etc.
1. Write any five limitation of financial accounting.
The limitations of financial accounting are as follows:
i. Discloses the overall result only: financial accounting disclosed the overall result of business only. It fails to reveal the result of each department, process, process, products, job etc.
ii. Not helpful in price fixation: financial accounting does not provide adequate information for fixation of selling prices of the product or services rendered by the business.
iii. No control on cost: financial accounting does not provide proper systems of controlling various elements of cost like materials, labor and other expenses.
iv. No classification of cost: financial accounting does not classify cost into direct and indirect, fixed & variable, controllable, uncontrollable, normal and abnormal cost etc.
v. Fails to offer a system of standard: financial accounting fails to measure the efficiency of martial, labor and other resources as it does not any system of standard.
2. Write the meaning of cost accounting.
Cost accounting is a branch of accounting that has evolved to overhead the limitation of financial accounting. It is an internal reporting system that aims to assist the management for planning and decision-making if primary emphasizes of cost and deals with collection, analysis, interpretation and presentation for managerial decision making on variable business problems. It is concerned more with the ascertainment, allocation, and distribution and accounting aspect of costs. Cost accounting is more concerned with short-term loaning and its deals with historic data but it is also futuristic in approach. In financial accounting the major emphasis is cost classification based on types of transaction but in cost. Accounting the major emphasis on functions, activities, products, process and on internal planning and control and information needs of the organization.
3. Write any five objectives or functions of cost accounting.
The main objective and function of cost accounting are mentioned below:
a. To ascertain cost: under cost accounting, cost re collected, classification and analyzed with the aim of finding out the total as well as per unit cost of goods, services, process, contact etc.
b. To analyze cost and loss: the analysis of cost is necessary to classify the cost into controllable or uncontrollable, relevant or irrelevant, profitable or unprofitable etc. similarly, under cost accounting the effects of missus of material, idle time, breakdown or damage of machine on the cost is also analyzed.
c. To control cost: cost accounting aims at controlling the cost by using various techniques, such as standard costing and budgetary control.
d. To help in fixation of selling price: the costs are accumulated, classified and analyzed to ascertain cost per unit. The selling price per unit is calculated by adding a certain profit on the cost per unit.
e. To aid the management: cost accounting aims at assisting the management in planning and its implementation by providing necessary costing information that also enable the evaluation of the past activities as well as future planning.
4. Write any five advantages of cost accounting.
The importance and advantage of cost accounting are parented below:
a. Helps in controlling cost: cost accounting helps in controlling cost by applying some techniques such as standard costing and budgetary control.
b. Provides necessary cost information: it provides necessary cost information to the management for planning, implementation and controlling.
c. Ascertains the total and per unit cost of production: it ascertains the total and per unit cost of production of goods and services that helps to fix the selling prices as well.
d. Introduces the profitable and non profitable activities: it disclosed the profitable and non profitable activities the enable management to decide to eliminate or contract unprofitable activities and expand or develop the profitable activities.
5. Write any five limitation of cost accounting.
Beside a number of advice, cost accounting suffers from a number of limitations. Some of them are mentioned below:
a. Lack of uniformity: cost accounting lacks a uniform procedure. It is possible that two equally competent cost accountant may arrive at different results from the same information.
b. Costly: there are May formalities which are to be observed by a small and medium size concern due to which the established and running cost are so much that it becomes difficult for these concerns to afford its cost. Result from it can be used only by big concerns.
c. Ignorance of futuristic satiation: the controllable of cost accounting for handing futuristic suitable has not been much. For example, it has not evolved so far any tool for handing inflationary suitable.
d. Lack of double entry system: under cost accounting, double entry system is not adopted that does not enable to check the arithmetical accuracy of the transaction and located the errors.
e. Developing stages: cost accounting is in developing stage since its principle; concept and conventions are not fully developed.
6. Write the meaning of management accounting.
Management accounting is one of the import branches of accounting that has roots on cost accounting. It is primary concerned with use of accounting data and information for planning, policy making, decision making, decision making and controlling. Its main focus is directed toward internal planning and control activities.
In other words, it is concerned with providing information to management-that is, people inside an organization who direct and control its operation. Managerial accounting provides the essential data with which the organizations actually run.
7. Write any five objectives or functions or importance of management accounting.
The main objective and function of management accounting are summarized as under.
a. To help in function plans: it assists management in planning the activities of the business. Planning is based on facts. Facts are provides by past accounts on which forecast of future transaction is made.
b. To help in the interpretation of financial information: management accountants presents the accounting information in an intelligent and simple manner that will help the management in interpreting the financial data, evaluation alternative courses of actions available and guiding it in taking decisions to have the most desired financial results.
c. To help in controlling performance: management accounting helps in controlling the perform and take suitable actions in order to action available and guiding it in taking decision to have the most desired financial results.
d. To help in organizing: management accounts recommends the use of budgeting. Responsibility accounting cost control techniques and internal financial control. These all needs the intensive study of the organization structure. In turn, they help to rationalize the organization structure.
e. Helps in solving business problems: management accounting provides accounting data to the management along with recommendation as to choose which alternative will be the best.
8. State any five limitation of management accounting.
Management accounting as any other branch of knowledge is not free from limitation. Some of them are as follow:
a. Continuance of intuitive decision-making: much management prone to take easy and simple path of intuitive decision-making rather than the difficult but reliable scientific decision-making process in the day-to-day management.
b. Based on other accounting: management accounting is based on financial accounting and cost accounting. The effective of management accounting largely depend on the effective of these accounting.
c. Evolutionary stage: management accounting is a new discipline and a growing subject too. It is still the infancy stage and undergoing evolutionary process.
d. Not an alternative to the management: management accounting is not an alternative to the management. It just helps the management to carry out its activities. This is not an end, rather a means only.
e. Costly installation: for installation of a system of management accounting in a business concern, an elaborate organization and a large number of manuals are essential. This in turn increases the cost due to which only target-scale organization can afford to install it.
9. Management accounting provides information for decision making. Explain or, management accounting is concerned with providing accounting information to the management. Comment or, management accounting provides both minatory and non minatory information comment this stat fem tn.
The management of form is involves in making a number of decision to run a business properly and smoothly. To make decision, the management needs data and information management accounting collects monetary as well as non monetary information and suppliers the same to the management for planning from financial accounting. Cost accounting tax accounting and provides them to the management. The financial accounting and cost accounting provides monetary information only but the management needs some non monetary information as well. This need of management is fulfilled by management accounting.
10. Management accounting is more concerned with the interpretation of information to assist the management in planning controlling. Decision making and apprising performance explain.
Management accounting collect and analyze information from financial and cost accounting. Besides these, it also collection non monetary and qualitative information from other source. The main objective of collection and analysis of such information is to find out the deviation between actions if any deviation takes place. These types of analysis also assist to make the future plan of the organization. Under management accounting the responsibility are assigned is done in a regular basis to ensure that the responsibility are properly discharged. In this way, management accounting is more concerned in providing information to the management to perform its different activities.
11. Business planning is one of the basic functions of management accounting. Explain
In an organization the management carries out three major activities –planning, directing and motivating and controlling. Out of these activities, planning is very importance function. Planning is deciding in advance the future course of action. Planning requires information which is providing by management monetary and qualitative information to the management accounting. Its main focus is directed towards internal planning and control activates.
12. Objectives of management accounting are far wider than that of financial accounting. Explain or, management accounting is more than a shift from record keeping explains.
The development of accounting shows that financial accounting was evolved first followed by cost management the day transaction for making the financial statement. Since, the management accounting, it seems the management accounting is a shift from financial accounting, but scope of management accounting is hectically in nature. Management, decision making and controlling. So, it is futuristic and proactive in nature. In this way, management accounting follows wider preventive than financial accounting.
13. Financial accounting is historical in nature, whereas management accounting is futuristic in nature. Elaborate this statement.
Financial accounting is primary concerned with keeping the records of the transaction for the purpose of ascertaining profit/ loss as well as financial condition of the business. Thus it is historic in nature. It provides information about the profit/loss as well as financial accounting after they take place because of which financial accounting is also called post-mortem examination. Management accounting decision making controlling decision making, forecasting, it policy making, controlling, decision making, forecasting. It makes necessary estimations and forecasting for future and attempts to records the risk and of the business. So it is futuristic in nature.
14. Write any five differences between financial and cost accounting.
The differences between financial accounting and cost accounting are mentioned below:
a. Purpose: the main objective of financial accounting is to ascertain the result of business operation and financial position on a given data whereas providing costing information to the management is the main objective of the cost accounting.
b. Statutory obligation: it is a statutory obligation to maintain financial accounting but it is not a statutory obligation to maintain in cost accounting.
c. Users: the users of financial accounting are external to the organization whereas users of cost accounting are internal.
d. Pattern of analysis: financial accounting analyses the business affairs in totality but cost accounting analysis the business affairs product-wise, services-wise etc.
15. Write any five different between cost account and management accounting.
the different between cost and management accounting are present below:
a. Meaning: cost accounting is concerned with the recording of cost, ascertainment of cost of product and services and analysis of cost. Management accounting is concerned with assisting the management in planning, decision making and controlling.
b. Objective: the main objective of cost accounting is to ascertain, analyses and control of cost. But providing necessary information to the management is the objective of the management accounting.
c. Nature: cost accounting is historical as well as futuristic in nature where management accounting is futuristic in nature.
d. Data: cost accounting considers the quantitative figure only. Besides the quantitative figures, management accounting considered the quantities aspects as well.
e. Scope: the scope of cost accounting is comparatively narrow than management accounting.
16. Write any five different between financial accounting and management accounting.
The different between financial accounting and management accounting are mentioned below:
a. users: financial accounting is more confided to prepare the accounts to meet the requirements of external parties whereas management accounting provides information for the internal use of management only.
B. methods: financial accounting is based on double entry system but management accounting is not based on double entry system.
C. principals: financial accounting records the transaction which could be measured in monetary terms but in management accounting certain non-monetary events like competition, technical changes etc. are also dealt.
D. time span: under financial accounting, the reports are generally present for one year whereas the reports under management can be prepared at any five as per requirement.
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It is the discipline of accounting, which is related with communication, measurement and contribution made by the business organization to the society where the organization are born and grown. It is the process of accounting for social responsibility aspects of a business. It is related with social cost incurred by the organization and social benefits earned by it and reporting thereof. Example of contribution given by the business enterprises is environmental contribution, employment generation, financial aid to the society, providing residential accommodation and low cost education to the weak sections of the society etc.
1. Write any five limitation of financial accounting.
The limitations of financial accounting are as follows:
i. Discloses the overall result only: financial accounting disclosed the overall result of business only. It fails to reveal the result of each department, process, process, products, job etc.
ii. Not helpful in price fixation: financial accounting does not provide adequate information for fixation of selling prices of the product or services rendered by the business.
iii. No control on cost: financial accounting does not provide proper systems of controlling various elements of cost like materials, labor and other expenses.
iv. No classification of cost: financial accounting does not classify cost into direct and indirect, fixed & variable, controllable, uncontrollable, normal and abnormal cost etc.
v. Fails to offer a system of standard: financial accounting fails to measure the efficiency of martial, labor and other resources as it does not any system of standard.
2. Write the meaning of cost accounting.
Cost accounting is a branch of accounting that has evolved to overhead the limitation of financial accounting. It is an internal reporting system that aims to assist the management for planning and decision-making if primary emphasizes of cost and deals with collection, analysis, interpretation and presentation for managerial decision making on variable business problems. It is concerned more with the ascertainment, allocation, and distribution and accounting aspect of costs. Cost accounting is more concerned with short-term loaning and its deals with historic data but it is also futuristic in approach. In financial accounting the major emphasis is cost classification based on types of transaction but in cost. Accounting the major emphasis on functions, activities, products, process and on internal planning and control and information needs of the organization.
3. Write any five objectives or functions of cost accounting.
The main objective and function of cost accounting are mentioned below:
a. To ascertain cost: under cost accounting, cost re collected, classification and analyzed with the aim of finding out the total as well as per unit cost of goods, services, process, contact etc.
b. To analyze cost and loss: the analysis of cost is necessary to classify the cost into controllable or uncontrollable, relevant or irrelevant, profitable or unprofitable etc. similarly, under cost accounting the effects of missus of material, idle time, breakdown or damage of machine on the cost is also analyzed.
c. To control cost: cost accounting aims at controlling the cost by using various techniques, such as standard costing and budgetary control.
d. To help in fixation of selling price: the costs are accumulated, classified and analyzed to ascertain cost per unit. The selling price per unit is calculated by adding a certain profit on the cost per unit.
e. To aid the management: cost accounting aims at assisting the management in planning and its implementation by providing necessary costing information that also enable the evaluation of the past activities as well as future planning.
4. Write any five advantages of cost accounting.
The importance and advantage of cost accounting are parented below:
a. Helps in controlling cost: cost accounting helps in controlling cost by applying some techniques such as standard costing and budgetary control.
b. Provides necessary cost information: it provides necessary cost information to the management for planning, implementation and controlling.
c. Ascertains the total and per unit cost of production: it ascertains the total and per unit cost of production of goods and services that helps to fix the selling prices as well.
d. Introduces the profitable and non profitable activities: it disclosed the profitable and non profitable activities the enable management to decide to eliminate or contract unprofitable activities and expand or develop the profitable activities.
5. Write any five limitation of cost accounting.
Beside a number of advice, cost accounting suffers from a number of limitations. Some of them are mentioned below:
a. Lack of uniformity: cost accounting lacks a uniform procedure. It is possible that two equally competent cost accountant may arrive at different results from the same information.
b. Costly: there are May formalities which are to be observed by a small and medium size concern due to which the established and running cost are so much that it becomes difficult for these concerns to afford its cost. Result from it can be used only by big concerns.
c. Ignorance of futuristic satiation: the controllable of cost accounting for handing futuristic suitable has not been much. For example, it has not evolved so far any tool for handing inflationary suitable.
d. Lack of double entry system: under cost accounting, double entry system is not adopted that does not enable to check the arithmetical accuracy of the transaction and located the errors.
e. Developing stages: cost accounting is in developing stage since its principle; concept and conventions are not fully developed.
6. Write the meaning of management accounting.
Management accounting is one of the import branches of accounting that has roots on cost accounting. It is primary concerned with use of accounting data and information for planning, policy making, decision making, decision making and controlling. Its main focus is directed toward internal planning and control activities.
In other words, it is concerned with providing information to management-that is, people inside an organization who direct and control its operation. Managerial accounting provides the essential data with which the organizations actually run.
7. Write any five objectives or functions or importance of management accounting.
The main objective and function of management accounting are summarized as under.
a. To help in function plans: it assists management in planning the activities of the business. Planning is based on facts. Facts are provides by past accounts on which forecast of future transaction is made.
b. To help in the interpretation of financial information: management accountants presents the accounting information in an intelligent and simple manner that will help the management in interpreting the financial data, evaluation alternative courses of actions available and guiding it in taking decisions to have the most desired financial results.
c. To help in controlling performance: management accounting helps in controlling the perform and take suitable actions in order to action available and guiding it in taking decision to have the most desired financial results.
d. To help in organizing: management accounts recommends the use of budgeting. Responsibility accounting cost control techniques and internal financial control. These all needs the intensive study of the organization structure. In turn, they help to rationalize the organization structure.
e. Helps in solving business problems: management accounting provides accounting data to the management along with recommendation as to choose which alternative will be the best.
8. State any five limitation of management accounting.
Management accounting as any other branch of knowledge is not free from limitation. Some of them are as follow:
a. Continuance of intuitive decision-making: much management prone to take easy and simple path of intuitive decision-making rather than the difficult but reliable scientific decision-making process in the day-to-day management.
b. Based on other accounting: management accounting is based on financial accounting and cost accounting. The effective of management accounting largely depend on the effective of these accounting.
c. Evolutionary stage: management accounting is a new discipline and a growing subject too. It is still the infancy stage and undergoing evolutionary process.
d. Not an alternative to the management: management accounting is not an alternative to the management. It just helps the management to carry out its activities. This is not an end, rather a means only.
e. Costly installation: for installation of a system of management accounting in a business concern, an elaborate organization and a large number of manuals are essential. This in turn increases the cost due to which only target-scale organization can afford to install it.
9. Management accounting provides information for decision making. Explain or, management accounting is concerned with providing accounting information to the management. Comment or, management accounting provides both minatory and non minatory information comment this stat fem tn.
The management of form is involves in making a number of decision to run a business properly and smoothly. To make decision, the management needs data and information management accounting collects monetary as well as non monetary information and suppliers the same to the management for planning from financial accounting. Cost accounting tax accounting and provides them to the management. The financial accounting and cost accounting provides monetary information only but the management needs some non monetary information as well. This need of management is fulfilled by management accounting.
10. Management accounting is more concerned with the interpretation of information to assist the management in planning controlling. Decision making and apprising performance explain.
Management accounting collect and analyze information from financial and cost accounting. Besides these, it also collection non monetary and qualitative information from other source. The main objective of collection and analysis of such information is to find out the deviation between actions if any deviation takes place. These types of analysis also assist to make the future plan of the organization. Under management accounting the responsibility are assigned is done in a regular basis to ensure that the responsibility are properly discharged. In this way, management accounting is more concerned in providing information to the management to perform its different activities.
11. Business planning is one of the basic functions of management accounting. Explain
In an organization the management carries out three major activities –planning, directing and motivating and controlling. Out of these activities, planning is very importance function. Planning is deciding in advance the future course of action. Planning requires information which is providing by management monetary and qualitative information to the management accounting. Its main focus is directed towards internal planning and control activates.
12. Objectives of management accounting are far wider than that of financial accounting. Explain or, management accounting is more than a shift from record keeping explains.
The development of accounting shows that financial accounting was evolved first followed by cost management the day transaction for making the financial statement. Since, the management accounting, it seems the management accounting is a shift from financial accounting, but scope of management accounting is hectically in nature. Management, decision making and controlling. So, it is futuristic and proactive in nature. In this way, management accounting follows wider preventive than financial accounting.
13. Financial accounting is historical in nature, whereas management accounting is futuristic in nature. Elaborate this statement.
Financial accounting is primary concerned with keeping the records of the transaction for the purpose of ascertaining profit/ loss as well as financial condition of the business. Thus it is historic in nature. It provides information about the profit/loss as well as financial accounting after they take place because of which financial accounting is also called post-mortem examination. Management accounting decision making controlling decision making, forecasting, it policy making, controlling, decision making, forecasting. It makes necessary estimations and forecasting for future and attempts to records the risk and of the business. So it is futuristic in nature.
14. Write any five differences between financial and cost accounting.
The differences between financial accounting and cost accounting are mentioned below:
a. Purpose: the main objective of financial accounting is to ascertain the result of business operation and financial position on a given data whereas providing costing information to the management is the main objective of the cost accounting.
b. Statutory obligation: it is a statutory obligation to maintain financial accounting but it is not a statutory obligation to maintain in cost accounting.
c. Users: the users of financial accounting are external to the organization whereas users of cost accounting are internal.
d. Pattern of analysis: financial accounting analyses the business affairs in totality but cost accounting analysis the business affairs product-wise, services-wise etc.
15. Write any five different between cost account and management accounting.
the different between cost and management accounting are present below:
a. Meaning: cost accounting is concerned with the recording of cost, ascertainment of cost of product and services and analysis of cost. Management accounting is concerned with assisting the management in planning, decision making and controlling.
b. Objective: the main objective of cost accounting is to ascertain, analyses and control of cost. But providing necessary information to the management is the objective of the management accounting.
c. Nature: cost accounting is historical as well as futuristic in nature where management accounting is futuristic in nature.
d. Data: cost accounting considers the quantitative figure only. Besides the quantitative figures, management accounting considered the quantities aspects as well.
e. Scope: the scope of cost accounting is comparatively narrow than management accounting.
16. Write any five different between financial accounting and management accounting.
The different between financial accounting and management accounting are mentioned below:
a. users: financial accounting is more confided to prepare the accounts to meet the requirements of external parties whereas management accounting provides information for the internal use of management only.
B. methods: financial accounting is based on double entry system but management accounting is not based on double entry system.
C. principals: financial accounting records the transaction which could be measured in monetary terms but in management accounting certain non-monetary events like competition, technical changes etc. are also dealt.
D. time span: under financial accounting, the reports are generally present for one year whereas the reports under management can be prepared at any five as per requirement.
More Read....
- Management accounting
- Cost accounting
- FINANCIAL ACCOUNTING
- Cost concept and classification
- Accounting error and their rectification
- Financial statement analysis
- Subsidiary Books Account
- balance sheet
- Final account of a company
- accounting worksheet
- Bank Reconciliation Statement
- FORFEITUERE AND RE-ISSUE OF SHARES
- Share Capital Accounting
- account company
- Accounting Reserve and Provisions
- Depreciation for Accounting
- profit and loss account
- Capital and revenue Account
- Journal Accounting
- Trial Balance Accounting
- Petty Cash Book
- Cash and Bank Transaction
- Ledger Account
- Journal Entry Accounting
- Accounting Equation
- Double Entry Book Keeping System
- What is accounting
- Accounting Meaning
- Accounting- in information system
- Statement of expenditure report
- Petty cash fund
- Bank cash book/cash bank book
- Journal voucher
- Budget heads for the fiscal year
- budget head expenditure
- New accounting system
- Government accounting
- single entry system
- Accounting for non- trading concern
- Cost reconciliation statement
- Unit or output costing
- Accounting for overheads
- Payroll sheet
- Accounting for labor
- Inventory Management
- Issue of materials
- Store keeping
- Accounting for materials
- Cost classification
- Cash flow statement
- Funds flow statement
- Accounting Ratio analysis
- Accounting for Debentures
- ISSUE OF SHARES OTHER THAN CASH
- ISSUE OF SHARE FOR CASH
- Final Account
- Accounting for labour
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