What is Management Accounting

What is Management Accounting

According to the Institute of Chartered Accountants of England, any form of accounting which enables a business to be conducted more efficiently may be regarded as management accounting. Management accounting information can help managers identify problems, solve problems and evaluate performance.

The main characteristics of management accounting are as follows:

1. Useful in decision making. The essential aim is to assist management in making decisions and control. It is concerned with all such information which can prove useful to management in decision making

2. Financial and Cost accounting information. Basic accounting information useful for management accounting derived from financial and cost accounting records.


Scope of Management Accounting

Management accounting has a very wide scope. It includes not only financial accounting and cost accounting but also all types of internal financial controls, internal audit, tax accounting, office services, cost control and other methods and control procedures. Thus scope of management accounting, inter alia includes the following:

1. Financial accounting. Financial accounting provides basic historical data which helps management to forecast and plan its financial activities for the future period. Thus for an effective and successful management accounting, there should be a proper and well-designed financial accounting system.

2. Cost accounting. Many of the techniques of cost control like standard costing and budgetary control and techniques of profit planning and decision-making like marginal costing, CVP analysis and differential cost analysis are used by the management accounting.

3. Reporting to management. For effective and timely decisions, there should be a system of prompt and intelligent reporting to management. Both routine and special reports are prepared for submission to top management, middle order management and operating level management depending on their requirements.
4. Cost control procedures. Any system of management accounting is incomplete without effective cost control procedures like inventory control, labour control, overhead control, budgetary control, etc.
5. Statistical tools. Various tools of analysing and presenting statistical data like graphs, tables, charts, etc., are used in preparing reports for use by the management.
6. Internal control and Internal audit. Management accountant heavily depends on internal financial controls like internal audit and internal check to plug loop holes in the financial system of the concern.
7. Financial analysis and interpretation. Management accountant employs various techniques to analyse and interpret financial data to make it understandable and usable to the management. Such analysis helps management to achieve objectives of management in a more efficient manner.
8. Office Services. Management accountant is expected to maintain and control office routines and procedures like filing, copying, communicating, electronic data processing and other allied services.

Functions of Management Accounting

Main functions of management accounting are as follows:

1. Planning. Information and data provided by management accounting helps management to forecast and prepare short-term and long-term plans for the future activities of the business formulate corporate strategy. For this purpose management accounting techniques like budgeting, standard costing, marginal costing, probability, correlation and regression, etc., are used.
2. Controlling. Controlling is a very important functions of management accounting helps in controlling performance by control techniques such as standard costing, budgetary control, control ratios, internal audit, etc.