Management Accounting is one of the branches of accounting. Management accounting ,as its name suggests,is the study of managerial aspects of accounting. It provides relevant information to management so that planning,organising,directing,controlling and coordinating of business operations can be done in an orderly manner,efficiently and effectively.
according to American Accounting Association_ defines Management accounting includes the methods and concepts necessary for effective planning for choosing among alternative business actions and for control through the evaluation and interpretation of performances.
Management accounting is the adaption and analysis of accounting information and its diagnosis and explanation in such a way to assist management._T.G.Rose.
Scope of management Accounting:
The scope of management accounting is very wide. It includes a variety of aspects of business operations. The following are the areas of knowledge that fall within the purview of management accounting.
- Financial accounting
- Cost accounting
- Cost control procedures
- Internal audit
- Inventory control
- Tax accounting
- Budgetary control
- Office services
The scope of management accounting is not limited to the presentation of information to the management. It covers the analysis and interpretation of information presented to the management.
Objectives of Management Accounting:
1. Formulating the plans and policies: Management accounting assists management in planning the activities of the business. Planning is deciding in advance what is to be done, when it is to be done, how it is to be done and by whom it is to be done. It involves forecasting on the basis of available information, setting goals, framing policies, determining the alternative courses of actions and deciding on the programme of activities to be undertaken. Thus, planning is making intelligent forecasting. This forecasting is based on facts. Facts are provided by past accounts on which forecast of future transactions is made. Management accounting helps management in its function of planning through the process of budgetary control.
2. Helps in organising: Thus management accountant recommends the use of budgeting, responsibility accounting, cost control techniques and internal financial control. This all needs the intensive study of the organisation structure. In turn, it helps to rationalise the organisation structure.
3. Helps in interpretation of financial information: Accounting is a technical subject and may not be easily understandable by everyone till the user has a good knowledge of the subject. Management may not be able to use the accounting information in its raw form due to lack of knowledge of accounting techniques.Management accountant presents the information in an intelligible and non-technical manner. This will help the management in interpreting the financial data, evaluating alternative courses of action available and guiding the management in taking decisions and having the most desired financial results.
4. Motivating the Employees: The management accountant by setting goals, planning the best and economical course of action and then measuring the performance tries his best to increase the effectiveness of the organisation and thereby motivate the members of the organisation.
5. Helps in Controlling: Management accounting is a useful device of managerial control. The whole organisation is divided into responsibility centres and each centre is put under the charge of one responsible person. He will be associated with the planning and framing of the budgets and be required to execute the plans and standards and deviations are analysed in order to pinpoint the responsibility.
6. Reporting: One of the primary objectives of management accounting is to keep the management fully informed about the latest position of the business concern. It helps the management in taking timely decision.
7. Helps in co-ordination: Management accounting helps the management in co-coordinating the activities of the concern by getting prepared functional budgets in the first instance and then co-coordinating the whole activities of the concern by integrating all functional budgets into one known as master budget. Thus, management accounting is a useful tool in coordinating the various operations of the business.
8. Helpful in tax administration: Management accounting helps in assessing various tax liabilities and depositing correct amount of taxes with the authorities concerned.