Submitted To: Dr. Sunil Verma Submitted By: Himanshu Swami
Professor of Management BBA(GEN) 5th sem
Accounting Section : A
SGT UNIVERSITY , GURUGRAM Roll no. 150602003

One simple definition of management accounting is the provision of
financial and non-financial decision-making information to managers.
According to the Institute of Management Accountants (IMA):
"Management accounting is a profession that involves partnering in
management decision making, devising planning and performance
management systems, and providing expertise in financial reporting and
control to assist management in the formulation and implementation of an
organization's strategy"

•Analysis and Interpretation of Data:-
The process by which sense and meaning are made of the data gathered in
qualitative research, and by which the emergent knowledge is applied to
clients' problems. This data often takes the form of records of group
discussions and interviews, but is not limited to this.
•Future-oriented:-
Future-oriented is a term used in finance and economics to describe agents
that discount the future lightly and so have a low discount rate, or
equivalently a high discount factor. Conversely, present-oriented agents
discount the future heavily and so have a high discount rate, or equivalently
a low discount factor.

•Serves as a yardstick:-
An efficiency of an individual can be assessed only by fixing the standard.
If not so, the concerned individual has no option of knowing his level of
efficiency. Anybody can improve maintain his efficiency on comparing with
standard. Likewise, the financial position of the business concern can be
identified only by fixing standards for various ratios and then reporting upon
the condition. There is no hard and fast rule for fixing the standard regarding
various ratios. Even though, the followings may be regarded as yardsticks
for ratio analysis.

The main concern of management accounting is to provide necessary
quantitative and qualitative information to the management for planning and
control. For this purpose it draws out information from accounting as well
as non-accounting sources.
Hence, its scope is quite vast and it includes within its fold almost all
aspects of business operations. However, the following areas may rightly be
pointed out as lying within the scope of management accounting.
I. Financial Accounting:-
The major function of management accounting is the rearrangement or
modification of data. Financial accounting provides the very basis for such a
function. Hence, management accounting cannot obtain full control and
coordination of operations without a well-designed financial accounting
system.

ii. Cost Accounting:-
Planning, decision-making and control are the basic managerial functions.
The cost accounting system provides necessary tools such as standard
costing, budgetary control, inventory control, marginal costing, and
differential costing etc., for carrying out such functions efficiently. Hence,
cost accounting is considered a necessary adjunct of management
accounting.
iii. Statistical Methods:-
Statistical tools such as graph, charts, diagrams and index numbers etc.,
make the information more impressive and comprehensive. Other tools such
as time series, regression analysis, sampling techniques etc., are highly
useful for planning and forecasting.

iv. Operations Research:-
Modern managements are faced with highly complicated business problems
in their decision-making processes. O P techniques like linear programming,
queuing theory, decision theory, etc., enable management to find scientific
solutions for the business problems.
v. Taxation:-
This includes computation of income tax as per tax laws and regulations,
filing of returns and making tax payments. In recent times, it also includes
tax planning.
vi. Organization and Methods [O&M]:-
O&M deal with organizations reducing cost and improving the efficiency of
accounting, as also of office systems, procedures, and operations etc.

•Planning and Formulation of Future Policies
•Analysis and Interpretation of Financial Information
•Controlling
•Helps in Organizing
•Helps in the Solution of Strategic Business Problems
•Helps in Coordinating Operations
•Helps in Motivating Employees
•Communicating Up-to-date Information
•Helps in Evaluating the Efficiency and Effectiveness of Policies

A management accounting tool is a framework, model, technique or
process that enables management accountants to: improve performance;
facilitate decision-making; support strategic goals and objectives; and
otherwise add value.

• Financial Statement Analysis: - Profit and Loss account and Balance Sheet
are important financial statements. These statements are analyzed for
different period. This type of analysis helps the management to know the
rate of growth of business concern. This analysis is done through
comparative financial statements, common size statements and ratio
analysis.
•Fund Flow Analysis:- This analysis find out the movement of fund from
one period to another. Moreover, this analysis is very useful to know
whether the fund is properly used or not in a year when compared to the
previous year. The working capital changes and funds from operation are
also find out through this analysis.

•Cash Flow Analysis:- The movement of cash from one period to another
can be find out through this analysis. Besides, the reasons for cash balance
and changes between two periods are also find out. It studies the cash from
operation and the movement of cash in a period.
•Budgetary Control:- Under Budgetary control techniques, future financial
needs are estimated and arranged according to an orderly basis. It is used to
control the financial performances of business concern. Business operations
are directed in a desired direction.
•Standard Costing:- Standard costing is predetermined cost. It provides
a yard stick for measuring actual performance. It is used to find the reasons
for the deviations if any.

•Marginal Costing:- Marginal costing technique is used to fix the selling
price, selection of best sales mix, best use of scarce raw materials or
resources, to take make or buy decision, acceptance or rejection of bulk
order and foreign order and the like. This is based on the fixed cost, variable
cost and contribution.
•Management Reporting:- The management accountant is preparing the
report on the basis of the contents of profit and loss account and balance
sheet and submit the same before the top management. Thus prepared
reports disclose the strength and weakness indifferent areas of operating
activities and financial activities. These identification are highly useful to
management for exercising control and decision-making.

Management Accounting is in the process of development. Hence, it suffers
form all the limitations of a new discipline. Some of these limitations are:
•Limitations of Accounting Data:-
Management accounting derives its information from financial accounting,
cost accounting and other records. It is concerned with the rearrangement or
modification of data. The correctness or otherwise of the management
accounting depends upon the correctness of these basic records. The
limitations of these records are also the limitations of management
accounting.

•Highly Expensive:-
The installation of management accounting system needs a very elaborate
organization. This results in heavy investment which can be afforded only
by big concerns.
•Evolutionary stage:-
Management accounting is only in a developmental stage. Its concepts and
conventions are not as exact and established as that of other branches of
accounting. Therefore, its results depend to a very great extent upon the
intelligent interpretation of the data of managerial use.
•Personal Bias:-
The interpretation of financial information depends upon the capacity of
interpreter as one has to make a personal judgment. Personal prejudices and
bias affect the objectivity of decisions.

•Lack of Objectivity:-
There is every possibility of personal bias and manipulation from the
collection of data to the interpretation stage in financial accounting. Thus, it
losses objectivity and validity.