INTRODUCTION TO MANAGEMENT ACCOUNTING NOTES

Accounting has been clearly defined as “the measurement and communication process of financial and economic data”. The science of accounting is still in the evolutionary process. The traditional accounting, later styled as single entry from of book-keeping, was in vogue right from time immemorial. The modest beginning of accounting took the form of Financial Accounting based on double entry system. Under this method all business transactions were at first recorded in the books of prime entry, posted into respective ledger accounts, balances were struck and the trial balances were prepared from and out of which the annual Profit and Loss Account and Balance Sheet of a business concern were prepared. The final accounts of a concern called as the ‘traditional package’, helped the management in the process of decision-making.

Generally speaking, the science of management seeks to organize the quantitative factors of a business decision, while the art of management consists in weighing the qualitative factors in the scale of the manager’s judgement, experience and insight to produce the best decision in the circumstances. Managers in the past, wholly relied on their intuition and experience in making business decisions vitally affecting the survival and success of their business units. But with the increase in the size and complexity of business due to a variety of factors like large scale operation, application of sophisticated modern technology, management has become more complex and cumbersome. To cope up with the increasing needs of large-scale business, the modern managers need meaningful and timely data for making decisions.



Accounting can be broadly classified into three types: (a) financial accounting, (b) cost accounting, and (c) management accounting. These three cannot be put in water-tight compartment classification; each one supplements the other. In fact, financial accounting provides the basis for cost accounting as well as management accounting and in the ultimate analysis management accounting includes part of cost accounting.

11.2 FUNCTIONS AND LIMITATIONS OF FINANCIAL ACCOUNTING

The American Institute of Certified Public Accountants has defined Financial Accounting as ‘the art of recording, classifying and summarising in a significant manner and in terms of money, transactions and events which are in part at least of a financial character, and interpreting the results thereof’.

Accounting is the language effectively employed to communicate the financial information of a business unit to various parties interested in its progress such as proprietors, creditors, investors, employees, consumers, the Government, etc. Financial accounting concerns that part of accounting which is meant to serve all parties externally to the operating responsibility of the firm, e.g., creditors, investors, employees, regulatory bodies and the general public. But management accounting is designed for use in the operational needs of the firm.

Functions of Financial Accounting

Financial Accounting is supposed to perform the following functions:

  1. Recording: Since all business transactions cannot be kept in memory, they have got to be systematically recorded and pass through journals, ledgers and work sheets before they could take the forms of final accounts. This aspect of financial accounting has assumed considerable importance with the limitation of human memory.
  2. Validating: With the universal acceptance and enforcement of accounting principles, every recorded entry in the books of accounts maintained by a business unit gives validity or authenticity to all such transactions so recorded.
  3. Communicating: This is an important function of financial accounting. Accounting serves as a language for communicating the financial facts about the enterprise or activity most effectively to all concerned interested in using and interpreting them.
  4. Interpreting: This aspect helps in unfolding the total financial picture of an undertaking and investing the same with more meaning.

As Professor Theodore Levitt of Harvard Business School remarked recently, “data do not yield information except with the intervention of mind. Information does not yield meaning except with the intervention of imagination”. The intervention of both mind and imagination are needed to make the data meaningful.

Limitations of Financial Accounting

Financial Accounting like any other branch of knowledge, is not without limitations. The fast changing conditions and environmental factors have brought the limitations of financial accounting to the fore.

  1. Nature of business: All the business in modern times have undergone radical changes and as the management needs a variety of data for decision making purpose. Financial accounting is not in a position to meet the requirements of the management in the important task of decision making process.
  2. Shift in emphasis: There is a shift in the emphasis in accounting in modern times from what it was once– a mere record keeping in analysis and interpretation necessitated by the management. As a result, the role of the accountant

has been changed from that of a mere book keeper to a more important role of a financial advisor.

  1. Technological revolution: With the profile and advancement in science and technology very minute and detailed break-up of all types of data concerning various parts of a business unit have become a must for the management in its day-to-day functioning. It is clear that financial accounting with its simple structure is not in a position to cater to the requirements of the management on the above lines.
  2. Importance of budgeting and planning: The importance of budgeting and planning in any business unit is realised in modern times. Financial accounting furnishes only a postmortem of past records. It is an accepted principle that the past is often of little or no guidance to the future; yet the latter is the main concern of management, and therefore some aid, other than the, conventional financial accounts is essential.
  3. Government regulations: Financial accounting is primarily concerned with objectively quantifiable information and it does not take cognisance of sweeping changes and conditions brought by the government regulations will have a far reaching effect on the productivity as well as profitability of a business concern and they cannot be ignored.
  4. Varying informational needs: The present day management is of three-tier system. Accordingly the informational needs of the different levels of management vary widely. They cannot be met wholly by the existing financial accounting. The annual Profit and Loss Account and Balance Sheet considered as a ‘movie’ and a ‘still photograph’ of a company respectively have been an end in themselves even though the story they tell is already out of date and is past history.

11.4 EMERGENCE OF MANAGEMENT ACCOUNTING

With the advancement of science and technology more sophisticated equipments and gadgets have been put into operation in the realm of accounting as well. This has changed the accounting from a mere device of recording to a powerful tool of forecasting, budgeting and budgetary control. Thus, financial accounting has been supplemented with financial and cost control, budgeting and budgetary control and also production planning and control besides reporting on business performance. Precisely, it has led to the emergence of management accounting.

The term ‘Management Accounting’ is of recent origin even in the USA. This term was first coined and used by the British Team of Accountants that visited the United States in 1950 under the auspices of Anglo-American Productivity Council. Since then management accounting has grown into a full fledged subject and is looked upon as a subject distinct from accounting in recent years. It is also otherwise known as “Management-Oriented Accounting” or “Accounting for Management”.

In common parlance Management Accounting refers to the modern concept of accounts as an effective tool in the hands of the management as against the traditional package of accounts. The primary object is to furnish all the relevant financial and statistical information focusing on every phase of activity in the organization. This means that management accounting, in the words of W.M. Harper, is concerned with “(a) management need for information regarding the economic operation of the enterprise and (b) the actual direct management of cash.”

The Institute of Chartered Accountants of England and Wales has defined Management Accounting as ‘any form of accounting which enables a business to be conducted more efficiently be regarded as Management Accounting”. Management Accounting, according to J. Batty “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 maximising profits or minimizing losses.” Robert Anthony opined that “Management Accounting is concerned with accounting information which is useful to management”. Shillinglaw has stated that accounting, which serves management by providing information as to the cost or profit associated with some portion of firm’s total operations, is called managerial accounting. But the most acceptable definition of Management Accounting has been furnished by the management accounting Team of Anglo-American Council on Productivity in its Report which reads: “Management Accounting is the presentation of accounting information in such a way as to assist management in the creation of policy and the day-to-day operation of an undertaking. The technique of accounting is of extreme importance as it works in the most nearly universal medium available for the expression of facts so that facts of great diversity can be presented in the same picture. It is not the presentation of these pictures that is the function of management but the use of them.”

All these definitions of Management Accounting reveal the following salient features:

  1. It is a merger of “management” and “accounting”.
  2. It is concerned with accounting information which is useful to management in maximizing profits or minimizing losses.
  3. It is concerned with the improvement in the efficiency of the various phases of management. Briefly management accounting with all its paraphernalia, does not supplement financial accounting as is errorneously misunderstood, but supplement the basic structure of traditional package of accounts to cater to the diversified requirements of modern management.

In the absence of an internationally accepted definition of management accounting, experts have used different terms to refer to managerial accounting such as business environment accounting, control accounting, decision accounting, responsibility accounting, etc. It is called responsibility accounting, since it provides accounting and statistical information to different levels of management to satisfy their needs.

11.4 FUNCTIONS OF MANAGEMENT ACCOUNTING

Broadly speaking the functions of management accounting embrace all activities concerning collection of statistical data, processing, analysing, interpreting and presentation of the same in a condensed capsule form, to satisfy the needs of different levels of management. The main functions of management accounting are discussed below:

  1. Management accounting involves forecasts and planning of future operations of the business in the light of the past as well as present achievements. The formulation of business budgets will be immensely useful in guiding both shortterm and long-term operations of the business in a most effective manner.
  2. Management accounting does not confine itself merely to financial data to assist the management in the decisionmaking process but frequently draws upon various sources other than accounting for qualitative information which cannot be converted into monetary terms. For this purpose, engineering records, case studies, minutes of meetings, productivity reports, special surveys and other business documents are greatly relied upon.
  3. Management accounting furnishes accounting data and statistical information required for the decision-making process in management which vitally affects the survival and the success of the business. This is affected through classification as well as combination of sales for different months and their break-up according to the class of products, types of customers, terms of credit, territory, etc.
  4. Management accounting, though concerned with past records, maintenance of values, allocation and fixation of responsibilities and the evaluation of the future developments, is primarily concerned with the analysis and interpretation of data which provide a new vista to the management. Thus, the analysis and interpretation of data which are considered as the backbone of management accounting, provide the necessary basis or infrastructure for a focus on all the phases of management.
  5. Management accounting establishes standards of performance in the different realms of activities in such way that any deviation therefrom can be easily measured leading to further investigation of the causes and institution of prompt remedial measures for rectifying the same. This is made possible through budgetary control and standard costing which are essential adjuncts of management accounting.
  6. Management accounting furnishes statistical information according to the varying requirements of the different levels of management, at periodic intervals. The three-tier management which is in vogue in the recent times requires information of various types at different intervals, e.g., the top level management requires information in a capsule from covering all aspects of the business at relatively long intervals whilst detailed analysis relating to a particular aspect of the business at short intervals will suffice the persons in the lower rungs of the management ladder.

11.6 SCOPE OF MANAGEMENT ACCOUNTING

The scope of Management Accounting is very wide and broadbased and it includes within its fold, a variety of aspects of business operations. The following are some of the areas of specialization included within the ambit of management accounting:

  1. Financial Accounting: This pertains to recording of all business transactions in the books of prime entry, posting them into respective ledger accounts, balancing them and preparing a trial balance, from and out of which a profit and loss account showing the results of the business and also a balance sheet depicting assets and liabilities of the business concern are prepared. This in turn forms the basis for analysis and interpretation for furnishing meaningful data to the management.
  2. Cost Accounting: Costing refers to the classification, recording and allocation of expenditures for the determination of the cost of products or services, ensuring management control over the same. This includes the determination of cost of every order, job, contract, process, or unit as may be required. This helps in the sharpening of the internal aspects of financial accounting.
  3. Forecasting and budgeting: This refers to the formulation of budgets and forecasts, using standard norms in co-operation with operating and other departments of a business concern. The ultimate success of any budgeting depends on the proper setting of target figures in the budgets and the actual realization of the same in practice, without even a slight deviation due to external reasons beyond the control of the management.
  4. Cost control techniques: These serve as effective tools for comparing the actual results with the predetermined figures as laid down in budgets. They greatly help in translating the budgets into operating plans.
  5. Statistical data: It is concerned with the supply of necessary statistical data and particulars needed by various departments of the business concern. This includes as stated earlier, statistical compilation of case studies, engineering records, minutes of meetings, special surveys and many other business documents.
  6. Taxation: This necessitates the computation of profits in accordance with the provisions of the Income Tax Act and also prompt filing of returns periodically and payment of taxes.
  7. Methods and procedures: They are concerned with standardization of methods and procedures in all fields of management for improving efficiency as well as for reducing the cost considerably. This also involves the preparation and issuance of accounting and other manuals which will provide the guidelines for others.
  8. Office services: This mainly relates to the maintenance of data processing and other office management services, stencilling and duplicating, dealing of inward and outward mails, etc.
  9. Internal audit: The effectiveness of the final audit depends in turn on the internal audit coverage in existence in any business concern.

Management accounting represents a happy blending of the two older professions of ‘Management’ and ‘Accounting’. The two important elements in the success of a business concern are accounting control and management efficiency. These two determinants are completely merged in management accounting through the harnessing of accounting for improving the efficiency of management.

Management accounting greatly assists the management in achieving better results by making a clear shift in emphasis from mere recording of transactions to their analysis and interpretation to give a new vista to the management. It concerns with the tools and techniques of formulation of budgets and pre-setting of standards as well as evaluation of deviations in actual performance and also implementation of prompt remedial measures. In short, management accounting eliminates intuition from the field of business management and broadens the services of accounting to management.

11.7            DISTINCTION BETWEEN MANAGEMENT AND FINANCIAL ACCOUNTING

Though management accounting and financial accounting cannot be put in watertight compartment classification, it should be remembered that the former is only an off-shoot of the latter. Precisely, management accounting supplements the functions of financial accounting in as much as it provides the necessary accounting data and statistical information needed by the management for improving the efficiency as a whole. Despite the close inter-relationship that exists, there are certain points of difference between the two and they are discussed below:

  1. Focus: In management accounting the main focus is on the internal details of any particular aspect of business operation, whereas in financial accounting the main focus is on the enterprise as a whole covering all the aspects of the business operation. In management accounting performance, evaluation and reports are concerned with individual departments, products, type of inventories, purchases, sales or other sub-divisions of the business enterprise. In financial accounting the balance sheet and the income statement reveal the overall performance of the enterprise as a whole for a specific period.
  2. Nature: Management accounting is mainly concerned with the future plants and policies, whereas financial accounting is concerned with historical records relating to the past. Management relies on the past records for formulation of future plans and hence, the interdependence of management accounting and financial accounting serves a limited purpose of throwing light on the events and results of the past. The forward looking management accounting greatly helps the management in improving the results in future through various tools and techniques of budgeting and budgetary control, standard costing, profit planning, etc.
  3. Characteristics: Management accounting lays emphasis on those characteristics which increase the value of information put to variety of uses, like flexibility, approximation, comparability, etc., whereas financial accounting lays emphasis on those characteristics of information like objectivity, validity, absoluteness, etc. This marked difference sometimes creates a serious doubt as to whether both the characteristics can be preserved within the same structure.
  4. Dispatch: Management accounting stresses on furnishing of information more quickly to facilitate the management in the decision-making process than is the case in financial accounting, since it is considered as a post-mortem of past records. In management accounting, up-to-date information and current figures provide the necessary foundation for formulation of budgets and forecasts for the improvement of the results in the future. It is well known that in financial accounting, the intervening time lag between the end of financial year and the preparation and presentation of final accounts for that year could not be reduced beyond a point.
  5. Obligatory: In modern times a business concern is free to install the system of management accounting. It is more or less obligatory on the part of every business concern to adopt financial accounting for disclosing the results of the business to the rightful owners.
  6. Legal formalities: Since a business concern is free to install the system of management accounting there is no statutory regulation fixing the norms and standards for preparation and presentation of accounting statements. Needless to state that these statements can be adapted to the changing needs of the management since they are meant for internal use, whereas, financial accounting statements are standardised and meant for external use. The provisions of the Companies Act in force govern the preparation and presentation of annual final accounts of companies.
  7. Type of data: Management accounting makes use of a variety of data which are highly descriptive, statistical, subjective, and relate to the future, whilst financial accounting makes use of data which are precisely quantitative, objective, and monetary and relate to the past. The end-use of management accounting is not restricted and hence, can be used to an unlimited extent by the management accordingly as necessitated by the changing circumstances and environmental factors. But it is clear that the ultimate object of financial accounting ends with the preparation and presentation of final accounts in any business concern.
  8. Precision: Management accounting lays no emphasis on precision as the data and particulars compiled are merely estimates and relate to the future. But in financial accounting precision is stressed greatly since the past result of the business is reflected through them.

11.8 COST ACCOUNTING AND MANAGEMENT ACCOUNTING

Cost Accounting is the process of accounting for costs. It embraces the accounting procedures relating to recording of all income and expenditure and the preparation of periodical statements and reports with the object of ascertaining and controlling costs. It is, thus, the formal mechanism by means of which the costs of products or services are ascertained and controlled. On the other hand, management accounting involves collecting, analysing, interpreting and presenting all accounting information which is useful to the management. It is closely associated with management control which comprises planning, executing, measuring and evaluating the performance of an organization. Thus, management accounting draws heavily on cost data and other information derived from cost accounting. Today cost accounting is generally indistinguishable from the so-called management accounting or internal accounting because it serves multiple purposes.

However, management accounting can be distinguished from cost accounting in one important respect. Management accounting has a wider scope as compared to cost accounting. Cost accounting deals primarily with cost data while management accounting involves the considerations of both cost and revenue. Management accounting is an all inclusive accounting information system that covers financial accounting, cost accounting and all aspects of financial management. But it is not a substitute for other accounting functions. It involves a continuous process of reporting cost, financial and other relevant data in an analytical and informative way to management.

We should not be very much concerned with the boundaries of cost accounting and management accounting since they are complementary in nature. In the absence of a suitable system of cost accounting, management will not be in a position to have detailed cost information and their function is bound to lose significance, on the other hand, the management cannot effectively use the cost data unless it has been reported to them in a meaningful and informative form.

11.8 UTILITY OF MANAGEMENT ACCOUNTING

Management accounting provides invaluable services to management in all of its functions. The basic functions of management are: (i) Planning (ii) Controlling, (iii) Coordinating, (iv) Organising, (v) Motivating, and (vi) Communicating. Management accounting helps in performance of each of these functions effectively as explained below:

  • Planning: It involves formulation of policies, setting up of goals and initiating necessary programmes for achievement of the goals. Management accounting makes an important contribution in performance of this function. It makes available the relevant data after pruning and analysing them suitably for effective planning and decision-making.
  • Controlling: It involves evaluation of performance keeping in view that the actual performance coincides with the planned one, and remedial measures are taken in the event of variation between the two. The techniques of budgetary control, standard costing and departmental operating statements greatly help in performing this function. As a matter of fact the entire system of control is designed and operated by the management accountant designated as controller.
  • Coordinating: It involves interlinking of different divisions of the business enterprise in a way so as to achieve the objectives of the organisation as a whole. Thus, perfect coordination is required among production, purchase, finance, personnel, sales, departments, etc., Effective coordination is achieved through departmental budgets and reports which form the nucleus of management accounting.
  • Organising: It involves grouping of operative action in a way as to identify the authority and responsibility within the organization. Management accounting here also plays a prominent role. The whole organization is divided into suitable profit or cost centres. A sound system of internal control and internal audit for each of the cost or profit centres helps in organizing and establishing a sound business structure.
  • Motivating: It involves maintenance of a high degree of morale in the organization. Conditions should be such that each person gives his best to realise the goals of the enterprise. The superiors should be in a position to find out whom to demote or promote or to reward penalise. Periodical departmental profit and loss accounts, budgets and reports go a long way in achieving this objective.
  • Communicating: It involves transmission of data, results, etc. both to the insiders as well as outsiders. The orders of the superiors should be communicated to the subordinates while the results achieved by the subordinates should be reported to the superiors. Moreover, the management owes a duty to the creditors, prospective investors, shareholders, etc., to communicate to them about the progress, financial position, etc. of the enterprise, Management accounting helps the management in performance of this function by developing a suitable system of reporting which emphasises and highlights the relevant facts.

Management accounting is thus helpful to the management in every field of activity. This is the reason why management accountant is considered not only a service arm to management but also a part of management.

11.10 LIMITATIONS OF MANAGEMENT ACCOUNTING

Management accounting, as any other branch of knowledge, is not without limitations. Though the emergence of management accounting has greatly improved the managerial performance, yet the new discipline has to face certain challenges and constraints conditioned mostly by the external factors. These factors curtail the effectiveness of management accounting and they are discussed below:

  1. Continuance of intuitive decision-making: Management accounting eliminates the intuitive decision-making process of management and replaces it with scientific decisionmaking. Unfortunately, much management is prone to take the easy and simple path of intuitive decision-making rather than the difficult but reliable scientific decision-making process in the day-to-day management.
  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, analyse, and interpret an historical event converted into monetary terms in a most objective manner. But it will be difficult to perform the same functions in respect of future and unquantifiable situation in the light of the past records.
  3. Comprehensive coverage: The fusion of a number of subjects like financial accounting, statistics, engineering, economics, taxation, etc. has culminated in the emergence of management accounting. Under the circumstances, it should be remembered that lack of knowledge and understanding of any one or more of these subjects will have its impact on the fixation of standards as well as solutions to the problems connected with the management performance.
  4. Evolutionary stage: Management accounting is a new discipline and growing subject too. It is still in the infancy stage and undergoing evolutionary process. Naturally, it faces certain obstacles and impediments before achieving perfection and finality. This necessitates sharpening of the analytical tools and improving of techniques for removing the air of doubt as regards uncertainty in their applications.
  5. Psychological resistance: The management accounting system spells a radical change in the management approach towards solving day-to-day problems confronted by it. This calls for a bound to attract opposition especially from the labour force misconstruing it as a tool meant for their exploitation. Constant education about the benefits of such a new technique alone will allay the fears of the labour force by and large. Management accounting, as a new discipline, is no exception to this rule and it encountered psychological resistance at least in the initial stage.
  6. Costly installation: For installation of a system of management accounting in a business concern, an elaborate organization and a large number of manuals are very essential. This in turn escalates the establishment charges such that only large scale organizations can afford to install it.

11.13 THE MANAGEMENT ACCOUNTANT

Management accounting provides significant economic and financial data to the management and the management Accountant is the channel through which this information efficiently and effectively flows to the Management.

The Management Accountant has a very significant role to perform in the installation, development and functioning of an efficient and effective management accounting system. He designs the framework of the financial and cost control reports that provide each managerial level with the most useful data at the most appropriate time. He educates executives in the need for control information and ways of using it. This is because his position is unique with respect to information about the organization. Apart from top management no one in the organization perhaps knows more about the various functions of the organization than him. He is, therefore, sometimes described as the Chief Intelligence Officer of the top management. He gathers information, breaks it down, sifts it out and organises it into meaningful categories. He separates relevant and irrelevant information and then ranks relevant information according to degree of importance to management. He reports relevant information in an intelligible form to the management and sometimes also to those who are interested in the information outside the company. He also compares the actual performance with the planned one and reports and interprets the results of operations to all levels of management and to the owners of the business. Thus, in brief, management accountant or controller is the person who designs the management information system for the organization, operates it by means of interlocked budgets, compute vacancies and exhorts others to institute corrective measures. Mr. P.L. Tondon has explained beautifully the position of the management accountant in the following words:

“The management accountant is exactly like the spokes in a wheel, connecting the rim of the wheel and the hub receiving the information. He processes the information and then returns the processed information back to where it came from.”

Functions of the Management Accountant

It is the duty of the management accountant to keep all levels of management informed of their real position. He has, therefore, varied functions to perform. His important functions can be summarised as follows:

  1. Planning: He has to establish, coordinate and administer as an integral part of management, an adequate plan for the control of the operations. Such a plan would include profit planning, programmes of capital investment and financing, sales forecasts, expense budgets and cost standards.
  2. 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. This is done through the compilation of appropriate accounting and statistical records and reports.
  3. 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 organisation structures and policies.
  4. Other functions
    • He administers tax policies and procedures.
    • He supervises and coordinates the preparation of reports to Government agencies.
    • He ensures fiscal protection for the assets of the business through adequate internal control and proper insurance coverage.
    • He carries out continuous appraisal of economic and social forces, and the government influences, and interprets their effect on then business.

It should be noted that the functions of a Management Accountant are more of those of a ‘staff official’. He, in addition to processing historical data, supplies a good deal of information concerning the future operations, in line with the management’s needs. Besides serving top management with information concerning the company as a whole, he supplies detailed information to the line officers regarding alternative plans and their profitability, which help them in decision-making. A a matter of fact the Management Accountant should not bother himself regarding the decision taken by the line officials after tendering advice unless he has reasonable grounds to believe that such a decision is going to affect the interests of the corporation adversely. In such an event also he should report it to the concerned level of management with fact, patience, firmness combined with politeness.

11.12 SUMMARY

Decision-making process, a vital function of the management, is highly facilitated by the information flowing from different sources.

Management accounting is one of the most important area because the information supplied by the management accounting are directly useful the managerial decision-making. In the ultimate analysis the businessman, like the army general in a battlefield confronted with a particular situation, must take a careful decision affecting the survival and success of the business. It is also highly imperative that a good management accounting department must be able to furnish all necessary facts of the situation along with various alternatives open to the businessman in such a situation, and also the estimates of the various costs and benefits arising out of different courses of action suggested. The better the presentation of such information, the easier would be the decision-making for the management.

In modern organization, when the problems of size, nature and competition have growth up, the role of management accounting has become more and more important. Today’s manager cannot take and should not take any decision without being considering the information supplied by the department of accounting and finance. The future of good decision-making lies in good presentation of management accounting information.

11.13 KEYWORDS

Management Accounting: Management accounting is concerned with presentation of accounting information which helps management in the formulation of policy and to facilitate management in discharging its day-to-day activities.

Management Accountant: He is a person who collects and provides accounting, cost accounting, economic and statistical information to the management to assist them in the performance of managerial functions and their evaluations.

Internal Audit: Internal audit is concerned with the verification of books of accounts within the organisation.

11.14 Self Assessment Questions1. Discuss the importance of Management Accounting for managerial decision-making. State briefly the difference between management and financial accounting.

  1. “Management Accounting is the presentation of accounting information in such a way as to assist the management in the creation of policy and in day-to-day operation of the undertaking”. Elucidate.
  2. Explain the scope of management accounting. Discuss the functions of management accountant.
  3. How does management accounting differ from cost accounting? Discuss the utility of management accounting.
  4. Write short notes on the following:
    • Financial accounting vs. cost accounting.
    • Role of management accountant.
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