Introduction To Management Accounting

1.2.1. Introduction to Management Accounting

(i) Meaning and Definition

Management Accounting is applied to the available accounting information for planning, controlling and decision-making. It helps the management carry out its functions by identifying problems, helps in finding out solutions and evaluates performance of business entity.

Definitions:

According to Robert Anthony, “Management accounting is concerned with accounting information that is useful to management”.

According to the Chartered Institute of Management Accountants (CIMA), UK, management accounting is “the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and

It encompasses diverse fields such as financial accounting, cost accounting, budgetary control and inventory control.

These are explained in brief below:

• Financial Accounting: Financial accounting provides information to the stakeholders by preparing financial statements. In preparing, analysing and communicating such information, management accountants collecttake information from financial statements and supply relevant, accurate and timely information to managers that aid them in making decisions.

• Cost Accounting: Cost accounting includes the preparation of budgets, comparing and analysing the variances, setting up the selling price of a product by taking into consideration all cost variants and measuring the profitability of the product or a project. Managers use cost accounting to support decision-making to cut a company’s costs and improve profitability. Thus, cost accounting helps management accounting make such decisions such as saidstated

The direction, in which a company will progress, depends on how a company has planned its policies to achieve its objectives in the future. The planning usually includes investment planning, expansion planning and forecasting of sales.

Organising: Management accounting helps a management accountant organise the team and all resources such as funds, people to ensure that the planning is implemented properly for achieving goals and the objectives of the organisation.

Controlling: Controlling is one of the most important goals of management accounting. It is carried out by comparing the actual performance with that of standard performance, which is usually set in the budget. It finds out variance, if any, and suggests corrective actions.

Co-ordinating: It helps in coordinating by divulging the relevant information to all the departments at the right time. Coordination of various functions involves the participation of various departments such as preparing participative budgets by consulting various functional heads, where departments can actually be involved in preparing bBudgets. For example, in preparation of sales budget, marketing, production and materials, the Finance department should get involved in order to prepare a budget which helps in increasing the profitability of an organisation. If all the departments agree to the budget that