Management Accounting

Management Accounting – Concept, Need, Importance, and Scope, Cost Accounting: Classification of cost, Reconciliation of profit between financial and cost Accounting. Difference between Financial Accounting and cost Accounting.

Introduction – Cost accounting no doubt serves the internal management by directing their attention on inefficient operations and assisting in a day-to-day control of activities of the enterprise. But even costing information fails to meet informational needs for management functions. The costing data needs to be arranged, re-analyzed and processed further for playing more effective role in the managerial process. In addition to costing and accounting data, managerial functions need the use of socio-economic and statistical data( eg; population break up, income structures etc). These information’s are beyond the scope of cost accounting and financial accounting which pave the way for emergence of management accounting. Management accounting provides all possible information required for managerial purposes.

Management Accounting is comprised of two words ‘Management ‘ and ‘Accounting’ . it is the study of managerial aspect of accounting. The emphasis of management accounting is to redesign accounting in such a way that it is helpful to the management in formation of policy, control of execution and appreciation of effectiveness. It is that system of accounting which helps management in carrying out its function more effectively.

The term management accounting is of recent origin. This term was first used in 1950 by a team of accountants visiting USA under the banner of Anglo- American council on Productivity. The terminology of cost accountancy had no reference to the word management accountancy before the report of this study group. The complexities of business environment have necessitated the use of management accounting for planning, co-coordinating and controlling functions of management.

A small undertaking with a local character is generally \managed by him. The owner is in touch with day-to-day working of the enterprise and he plans and coordinate the activities himself. The use of simple accounting enables the preparation of profit & loss account and balance sheet for determining profitability and assessing financial position of the enterprise. All information needs for management purposes are met by simple financial statements. Since the owner is both the decisions- maker and implementer of such decisions, he does not feel the necessity of any communication system and no additional information is required for managerial purposes. The evolution of joint stock company form of organization has resulted in large-scale production and separation of ownership and management.