Management accounting refers to processes and technologies that help managers use resources effectively to add value to an organization. It provides information to managers at all levels to assist with decision-making. Management accounting analyzes administrative actions in terms of costs, prices, and profits to help managers choose between alternatives. It serves as a management information system that facilitates effective management through meaningful reports tailored to managers' needs.
Transaction Management in Database Management System
Management Accounting Tools for Decision Making
1. •Management accounting refers to the Managerial process and
technologies that are focused on adding value to the organization by
attaining the effective use of resources, in dynamic and competitive
contexts.
•Management accounting provides information to the managerial
personnel at three levels of management viz., top, middle and lower
levels of management.
•It provides the management with the tools for an analysis of its
administrative action that can lay suitable emphasis on the possible
alternatives in terms of costs, prices and profits.
•It is a distinctive form of resource management which facilitates
management’s “Decision Making” by producing meaningful information
to the managers in the desired format.
2. Management accounting includes financial accounting information and raw
material from several other disciplines such as costing, statistics,
mathematics, political science, sociology, psychology, management
economics, law etc.
With all these data he can ensure optimum utilization of all the resources
including employees by maintaining sound morale of the employees,
maximization of output and minimization of inputs, analyze the managerial
questions in terms of costs, revenues, profits and growth.
It is thus a highly personalized service with the help of which management
can explore and exploit business opportunities and take sound and correct
decisions.
It is not a precise science as it uses its own conventions rather than
standardized principles. Therefore the inferences drawn from the facts
provided depends on the skill, judgment and common sense of different
management accountants.
Thus it is said that management accounting serves as a management
information system which enables the effective management of an
enterprise.
3. Management accounting is a wide and diverse subject. It is thus very difficult to
define its scope, as it is a dynamic and ever growing discipline of knowledge. The
important techniques and systems used by management accounting are briefly
stated below.
Historical cost accounting: Maintenance of books of cost accounting enables to
know the actual costs incurred by the firm.
Standard costing: The standard costs laid down by experts are compared with the
natural costs in order to know the deviations
Marginal costing: The costs are divided into fixed and variable costs which help is
making vital decisions.
Decision accounting: Decisions are made after studying the impact of decisions in
terms of costs, resource, profits, growth etc.
Budgetary control: It is a system of controlling the cost with the help of budgets.
Control accounting: It includes the techniques such as standard costing,
budgetary control, control reports, internal check, internal audit and reports.
Revaluation accounting: It is based on current costs to ensure that the investment
is intact and level of profits from investment are maintained constantly.
Financial planning & policies: It consists of raising the long term and short term
finance and invest it on optimum basis and enhance the profitability of the firm.
4. Capital expenditure: The large amounts of future capital expenditure and
future profits are analyzed to take important decisions.
Break even analysis: This is an important technique which is used to analyze
the behavior of costs viz., fixed and marginal costs, indicating the level of
activity at which the total costs would equal the total revenue and also the
margin of safety.
Inter-period comparison: It is a technique of comparing the present
performance with the past performance.
Techniques of forecasting: Some techniques like decision tree, probability
and sensitivity analysis (Leverage) are used by management accountants for
forecasting which forms a base for planning.
Operations research: It consists of statistical and mathematical techniques
(PERT & CPM) that are increasingly used in decision making process.
Statistics: The statistical techniques used by management accountant are
correlation, regression, probability, time series, standard deviation, linear
programming, control charts etc.
5. Modification and Validating the data: The management accounting system
modifies the data furnished by financial accounting to serve the managerial
needs in such a way that the process of classification and combination which
enables to retain similarities without eliminating dissimilarities.
Analysis and interpretation of data: Though management accounting is
concerned with recording of business transactions, its essence lies in
analysis and interpretation of such data. To discharge this function
management accounting uses a number of tools like Marginal costing,
budgeting, standard costing etc.
Communicating the data: The collected and interpreted data must be
communicated to those who are interested in it or to whom it has some
meaning. Otherwise these data may not yield any meaningful result and the
whole process of collecting, validating and interpreting would amount to be a
futile exercise. The communication of the data should be done within a
reasonable time. Data delayed is decision delayed and a delayed decision
may delay the prosperity of its concern.
6. Collection of data: The management accountant has to collect data about the
problems faced by the management through primary and secondary sources.
Analysis of data: After the collection of data, the management accountant has to
analyse it for the purpose of interpretation using various tools and techniques.
Presentation of data: The management accountant is required to present the data to
the management in columns and rows to facilitate proper understanding.
Planning: The management accountant assists the management in long range
planning as well as in formulation of policies of the organisation.
Controlling: The management accountant follows different techniques like standard
costing, budgetary control etc to ensure adequate control for implementation of
plans and achievement of objectives.
Reporting: Reporting being a very important function of a management accountant,
he has to prepare different types of reports periodically and communicated to the
concerned departments to meet the requirements at different levels of management
for necessary action.
Coordinating: The management accountant has to co-ordinate the various activities
of the organization for the preparation of master budget and other such activities.
Decision making: The management accountant has to assist the management in
taking realistic decisions through analysis and interpretation of data that suggests a
particular course of action with the help of various tools of management accounting.
7. 7
Necessity
Financial Accounting (FA): SEBI (or banks or
suppliers) requires publicly traded
companies to publish financial statements
according to GAAP.
Management accounting (MA) is optional.
Purpose.
FA: Produce financial statements for
outside users.
MA: Help managers plan, implement and
control.
8. 8
Users.
FA: faceless group, external users, present or
potential shareholders.
MA: Known managers who influence what
information is needed.
Underlying structure.
FA: built around: Assets = Liabilities +
Stockholders’ Equity.
MA: 3 purposes each with its own set of
concepts and constructs (addressed later).
9. 9
Source of principles.
FA: GAAP.
MA: whatever managers believe is useful.
Time orientation.
FA: historical, tell it like it was.
MA: future/decision oriented, tell it like it will be.
(However, the past is often a good predictor of
the future.)
10. 10
Information content.
FA: financial statements are the end product
and include primarily financial info.
MA: non-monetary as well as monetary info.
Information precision.
FA: Uses approximations but as a
generalization is more precise than MA.
MA: Management needs info rapidly to be
useful in decision making and therefore
precision is sometimes sacrificed.
11. 11
Report frequency:
FA: Publicly traded, SEBI: quarterly, with more
detailed info annually.
MA: Up to management.
Report timeliness.
FA: Usually, several weeks to months after fiscal
close of accounting period.
MA: Quickly to be useful for decision making.
12. 12
Report entity.
FA: Organization as a whole.
MA: Relatively small parts (responsibilities
centers such as departments, product lines,
divisions, subsidiaries as well as organization as
a whole.)