BBA Management Accounting Introduction to Management

  • Strategic Management Accounting – This function helps the organisation prepare long –term plans, formulate corporate strategy and forecast and evaluate the competitors.
  • Investment Appraisal – This activity includes the.
  1. Appraisal of long term investment,
  2. Funding of accepted programmes/projects, and
  3. Post – audit of accepted programmes.
  • Financial Management – it deals with rising of funds for investment, managing surplus funds, controlling working capital etc.
  • Short – term ad hoc decisions – This includes analyzing data for taking decisions on pricing, product introduction, acceptance of special orders etc.
  • Managing the Organisation of information system – This includes not only organising the enterprise’s financial data but fulfilling the information needs of all the segments of the organisation.

Figure shows the inter – relation of a business enterprise and with various segments viz, government, society, customers, suppliers, owners, managers, employees, financiers etc.

FIGURE INTER RELATION OF BUSINESS ENTERPRISE WITH OTHER SEGMENTS
FIGURE: INTER RELATION OF BUSINESS ENTERPRISE WITH OTHER SEGMENTS

 

Bba Management Accounting Introduction to Management Accounting

Role of Management Accountant

The term ‘management accountant’ has many synonyms. Finance director, financial controller, finance manager, controller, comptroller, etc., are some of the terms used to designate any person entrusted with the work management accounting. Depending upon the company situation, size, nature and organisational set – up and his own capabilities and position in the company, the management accountant may be required to perform various and varied functions. The importance and effectiveness of his function would also depend upon the confidence reposed in him by the top management and the functional managers. His functions generally embrace each and every activity of the management. The essence of management accountants functions are as follows:

  • The management accountant will establish, co-ordinate and administer plans to facilitate the forecasting of sales, expense budgets and cost standards that will permit profit planning, capital budgeting and financing.
  • The management accountant will formulate accounting policy and procedures. Operating data and special reports must be prepared so that the performance can be compared with plans and standards, and any variance between actual operations and pre-determined standards can be analysed for corrective actions by management. Such comparisons between actual and expected activities should help the management in proper fixation of responsibility and also in evaluation of various functional and divisional heads.
  • The management accountant will be responsible for the protection of business assets to the extent possible by external controls and internal auditing and insurance coverage.
  • The management accountant will be responsible for tax policies and procedures and will supervise and co-ordinate the reports required by various authorities.

An analysis of the above functions reflects the status of a management accountant. He is the principal officer in-charge of the accounts of the company. He shall be responsible to the board of directors for the maintenance of adequate accounting procedures and records on the operation of business. He shall be responsible to the president or the chairman of the board or the board of directors. Thus, in his broad functional activities, the management accountant is responsible to the policy making group of top management, whereas, in his administrative activities he is responsible to the to executive officer.

Bba Management Accounting Introduction to Management Accounting

Management Accounting and Financial Accounting

The financial accounting classifies and records an entity’s transactions normally in money terms, in according with established concepts, principles, accounting standards and legal requirements. It aims to present a ‘true and fair view’ of the overall results of those transactions. Management accounting has been described as a continuous process of analysis, planning and control in the context of providing decision support for decision makers. Management accounting is more concerned with decision making and a key role for management accountant is acting as a provider of financial information to support these decisions. There are several differences between financial accounting and management accounting as are as shown below:

Management Accounting and Financial Accounting
Management Accounting and Financial Accounting

Financial accounting and management accounting both appear to be similar in as much as both study the impact of business transactions and events of the enterprise, report and interpret the result there of. Both provide information for internal as well as external use. But management accounting, although having its roots in financial accounting differs from the latter in the following aspect:

  • Financial accounting studies the business transactions and events for the enterprise as a whole. It does not trace the path of events within the enterprise. Management accounting, in addition to the study of events in relation to the enterprise as a whole, takes organisation in its various units and segments and attempts to trace the impact and effect of the business transactions and events through these various divisions and sub-divisions. Thus, while the financial statements- profit and loss account, balance sheet and flow statements reveal the overall performance and position of the enterprise. Management accounting reports emphasis on the details of operational costs, inventories, products, processes and jobs. It traces the effect and impact of the business transactions and events on costs, inventories, processes, job and products.
  • Financial accounting is more attached with reporting the results and position of business to person and authorities other than management – government, creditors, investors, owners etc. at time, financial accounting follows window-dressing tactics in order to project a better than actual image of the enterprise. Management accounting is concerned more with generating information for the use of internal management and hence the information reflects the real o;r really expected position.
  • Financial accounting is necessarily historical. It records and analyses business events long after they have taken place. Management accounting analyses the events as they take place and also anticipated such events for the future. This, it uses data which generally has relevance to the future.
  • Since financial accounting data is historical in nature, it is more precise than the management accounting data, which generally reflects the expected future, and hence could only be estimation. This provides the necessary rapidity to management accounting information.
  • The periodicity in reporting financial accounts is much wider than in case of management accounting. In financial accounting, generally, results are reported on year to year basis. In management accounting weekly, fortnightly and even monthly reporting is used.
  • Financial accounting has to be governed by the ‘generally accepted principles’. This is so because; it has to cater for the informational needs of the outsiders and legal provisions. Management accounting is free to formulate its own rules, procedures and forms because the information it generates is solely for internal consumption.
  • Financial statements prepared under financial accounting consist of monetary information only. Management accounting statements, in addition to monetary information, also consists non-monetary information viz., quantities of materials consumed, and number of workers, quantities produced and sold and so on.

Bba Management Accounting Introduction to Management Accounting

Summary

  • Management accounting is a system of collection and presentation of relevant economic information relating to a business enterprise for managerial decision making, both short-term as well as long – term.
  • Management accounting uses various techniques and concepts while processing the economic information, to make better decisions and thereby achieve organisation’s objectives.
  • Management accounting includes financial accounting and extends to the operation of a system of cost accounting and financial management.
  • Management accounting analyses and interprets accounting and other data to make it understandable and usable to the management.
  • It provides periodic internal accounting reports for day to say functioning and as hoc reports for management decision making.
  • Financial accounting studies the business transactions and events for the enterprise as a whole and it is historical in nature. Management accounting studies the enterprise and its divisions /products etc.
  • Financial accounting is more attached with reporting the results for external reporting management accounting generates information for internal management.
  • The scope of management accounting is much broader than the scope of cost accounting.
  • Cost accounting is concerned more with the ascertainment, allocation, distribution and accounting aspects of costs. Management accounting makes corporate planning and strategy effective and meaningful.
  • Management is concerned both with assisting management in its functions, as well as, evaluating the performance of the management as an institution.

 

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