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8/4/2019 Clss 1 Trm 2
1/20
www.unitedworld.in
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2/20
MANAGEMENTACCOUNTINGa TOOL to help managers
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1. Planning and control functions2. Functions of Management Accounting3. Financial Accounting and Management
Accounting
Session plan as per DESCRIPTOR
(Class 1; Session 1)
Overview of Management Accounting
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Session Plan1. Accounting2. Management Accounting3. Functions of Management Accounting4. Management Accounting
vs Financial Accounting.5. Some similarities between MA & FA6. Cost Accounting7. Uses of Cost Accounting
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Financial
Accounting
Accounting
The process of identifying, measuring andcommunicating economic information
to permit informed judgements and
decisions by users of the information.
Financial
Accounting
Management
Accounting
Cost Accounting
Business Accounting System
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Management Accountinganagement Accounting
Management Accounting1. Conventional Accounting reveals periodically how
well (or badly) the firm is being run.
2. But this information is more useful to externalparties namely shareholders, creditors, Govt. etc.
3. There is no denying the fact that internal parties i.e.,managers also require this information. But toimprove their future performance, it is of little use.
4. Thats why this new system of accounting has beendeveloped, specially for managers, for improving
their performance.
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5. Management Accounting is thus concerned withfurther improvement of the overall efficiency.
6. It is forward-looking. It provides the basis to makeinformed business decisions.
7. The Institute of Cost and Management Accountants,London, has defined Management Accounting as:
the application of professional knowledge and skill in
the preparation of accounting information in such away as to assist management in the formulation of
policies and in the planning and control of theoperation of the undertakings.
Continued
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1. PLANNING & FORECASTING provides necessaryinformation and data for long and short-term
planning and forecasting.
2. MOTIVATION motivates employees by settingtargets, measuring actual performance, comparingthe same with the targets and then rewarding them
suitably for their efficiency.
3. EVALUATION OF PLANS AND POLICIES evaluatesvarious policies & their impact on the profitability.
FUNCTIONS OF MANAGEMENTACCOUNTING
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4. STRATEGIC DECISION MAKING supplies analytical
information of various alternatives, thus enabling
proper strategic decisions (to close down a unit or not/ to make or buy a product etc.)
5. CO-ORDINATION through budgeting, differentactivities of a business concern can be coordinated.
6. CONTROL sets standard for various activities andoperation of a firm. Thereafter measures actualperformance vs the standard & highlights weak areas
enabling corrective actions in those areas.
Continued
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Accounting information
specifically prepared toaid managers is Management Accounting.
In short
Used in three basic managerial functions:-
1.Planning : process of deciding what actionshould be taken in the future
2. Implementation : specific actions (planned in
advance) to fulfill the budgets
3. Control : managerial action to correct conditionsthat cause deviation between the
actual and planned performance
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MANAGEMENT ACCOUNTINGVS. FINANCIAL ACCOUNTING
Structure
Varies according to
use of the information Unified structure
DIMENSIONMANAGEMENT
ACCOUNTING
FINANCIAL
ACCOUNTING
Sources ofprinciples
Whatever is useful
to Management
Generally accepted
accounting principles
Need Optional Statutory Obligation
Time-orientation
Historical and
future estimatesHistorical
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Reportingentity
Responsibilitycentres
Overall organisation
DIMENSIONMANAGEMENTACCOUNTING
FINANCIALACCOUNTING
PurposeAssisting
management
External reporting/
for outside users
UsersSmall groups/known identity
Relatively largergroups/ unknown
Continued
Information
content
Monetary & non-
monetary
Primarily monetary
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Informationprecision
Manyapproximations
Few approximations
DIMENSIONMANAGEMENTACCOUNTING
FINANCIALACCOUNTING
Reportfrequency
Varies (weekly ormonthly common)
Quarterly and annual
Reporttimeliness
Prompt at the endof the period
Delay of weeks ormonths common
Continued
Liability
potential
Virtually noneFew lawsuits, but
threat always present
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SIMILARITIES BETWEEN FINANCIALAND MANAGEMENT ACCOUNTING
Basic data collected for both are in
accordance with GAAP to avoid
duplication.
Most elements of financial accounting are
also found in management accounting.
Both are used in decision making.
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USES OF COST ACCOUNTING
1. Cost Accounting provides data forAppraisal Information (measurement)
2. Cost Accounting helps in ProfitPlanning
3. Cost Accounting is useful for thepurpose of control.
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For measurement purpose the managementaccounting system focuses on the measurement offull costs.
Full costs are used in(i) Financial reporting,(ii)Analysing economic performance and
(iii)Cost-plus contracts.
Full Cost Accounting measures the resources used inperforming some activity. It is the sum of direct andindirect costs.
MEASUREMENT PURPOSES
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For control purposes, management accounting
measures costs by responsibility centres.
Responsibility Centre is an organisation unit
headed by a manager who is responsiblefor its operations and performances.
CONTROL PURPOSES
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RECAP1. Accounting
2. Management Accounting3. Functions of Management Accounting4. Management Accounting
vs Financial Accounting.5. Some similarities between MA & FA6. Cost Accounting7. Uses of Cost Accounting
8/4/2019 Clss 1 Trm 2
19/20
NEXT SESSION
FUNDS FLOW STATEMENTS
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THANK YOU