Overview of Financial accounting Three phases pre-industrialization, post-industrialization & Competitive environment Development of FA in post-ind Major factors, volume production, separation of investors/users from management It was not possible to operate old system of accounts for catering to the needs of the volume & location challenges. Objective of the development of new system of accounting Purpose of above steps safeguarding investors & other users as they were separate from management

Overview of FA, definition Systematic recording, classifying and summarizing business and financial transactions. Accounting is just a logical way of converting data into information for making decision. Example of election, Difficult to know their opinion at once in a gathering Capture all eligible voters through voters lists Various points are established for casting of votes ( Casted votes are counted according to candidates (Classifying in ledger) Results are summarized (Summarizing) Results are presented for decision of govt making ( Is just preparation of FS sufficient How do we guarantee correctness & fairness of the FS Various Features of internal control, audit, internal audit, disclosure requirements, regulatory framework are put in place

Management Accounting Definition Objectives Difference between FA & MA Difference between CA & MA Limitations of MA Overview of MA Broad areas

Case Studies

http://www.cimaglobal.com/Professional-ethics/Ethics/Responsible-business/Ethical-dilemma/Case-studies/

http://highered.mheducation.com/sites/0077098595/student_view0/case_studies.html

Difference between cost accounting and management accounting Usually though to be one and the same as users (internal management) of both are same. If we talk about cost accounting, it has a quantitative approach but the management accounting gives emphasis on both quantitative and qualitative data.

Difference of FA & MA

Difference of CA & MA

BASIS OF COMPARISONCOST ACCOUNTINGMANAGEMENT ACCOUNTING

MeaningThe recording, classifying and summarising of cost data of an organisation is known as cost accounting.The accounting in which the both financial and non-financial information are provided to managers is known as Management Accounting.

Information TypeQuantitative.Quantitative and Qualitative.

ObjectiveAscertainment of cost of production.Providing information to managers to set goals and forecast strategies.

ScopeNarrow, as it is limited only up to the cost information.Its area of operation is wide.

Specific ProcedureYesNo

RecordingRecords past and present dataIt gives more stress on the analysis of future projections.

Definition of Cost Accounting

Cost Accounting is a method of collecting, recording, classifying and analyzing the information related to cost. The information provided by it, is helpful in the decision making process of managers. There are three major elements of cost which are material (direct & indirect), labor (direct & indirect) and overhead (Production, Office & administration, Selling & Distribution, etc). As compared to MA its scope is narrow & limited. It has specific procedures and records past & present data. The main aim of the cost accounting is to track the cost of production and fixed costs of the company. This information is useful in reducing and controlling various costs. It is very similar to financial accounting, but it is not reported at the end of the financial year.

Definition of Management Accounting

Management Accounting refers to the preparation of financial and non-financial information for the use of management of the company. It is also termed as managerial accounting. The information provided by it is helpful in making policies and strategies, budgeting,, forecasting future plans, making comparisons and evaluating performance of the management.

The reports produced by management accounting are used by the internal management (managers and employees) of the organization and so they are not reported at the end of the financial year.

Key Differences Between Cost Accounting and Management Accounting

The accounting related to the recording and analyzing of cost data is cost accounting. The accounting related to the producing information which is used by the management of the company is management accounting.Cost Accounting provides quantitative information only. On the contrary, Management Accounting provides both quantitative and qualitative information.Cost Accounting is a part of Management Accounting as the information is used by the managers for making decisions.The main objective of the Cost Accounting is the ascertainment of cost of producing a product, but the main objective of the management accounting is to provide information to managers for setting goals and future activity.There are specific rules and procedure for preparing cost accounting information while there is no specific rules and procedures in case of management accounting information.The scope of Cost Accounting is limited to cost data however the Management Accounting has a wider area of operation like tax, budgeting, planning and forecasting, analysis etc.

Similarities

Branch of AccountingHelpful in decision makingPrepared for a particular period.Not reported at the end of the financial year.

Conclusion

Both the cost accounting and management accounting are a part of accounting. They are helpful in for ensuring smooth and efficient running of the business. On the basis of the information provided by the two entities various analysis are conducted. Cost accounting aims at reducing extra expenditure, eliminating unnecessary costs and controlling various costs. On the other hand management accounting aims at planning of policies, strategy formulation setting goals etc.

Financial accounting has its focus on the financial statements which are distributed to stockholders, lenders, financial analysts, and others outside of the company. Courses in financial accounting cover the generally accepted accounting principles which must be followed when reporting the results of a corporation's past transactions on its balance sheet, income statement, statement of cash flows, and statement of changes in stockholders' equity.

Managerial accounting has its focus on providing information within the company so that its management can operate the company more effectively. Managerial accounting and cost accounting also provide instructions on computing the cost of products at a manufacturing enterprise. These costs will then be used in the external financial statements. In addition to cost systems for manufacturers, courses in managerial accounting will include topics such as cost behavior, break-even point, profit planning, operational budgeting, capital budgeting, relevant costs for decision making, activity based costing, and standard costing.

Point of DifferencesFinancial AccountingCost Accounting

MeaningRecoding of transactions is part of financial accounting. We make financial statements through these transactions. With the help of financial statements, we analyze the profitability and financial position of a company.Cost accounting is used to calculate cost of the product and also helpful in controlling cost. In cost accounting, we study about variable costs, fixed costs, semi-fixed costs, overheads and capital cost.

PurposePurpose of the financial statement is to show correct financial position of the organization.To calculate cost of each unit of product on the basis of which we can take accurate decisions.

RecordingEstimation in recording of financial transactions is not used. It is based on actual transactions only.In cost accounting, we book actual transactions and compare it with the estimation. Hence costing is based on the estimation of cost as well as on the recording of actual transactions.

ControllingCorrectness of transaction is important without taking care of cost control.Cost accounting done with the purpose of control over cost with the help of costing tools like standard costing and budgetary control.

PeriodPeriod of reporting of financial accounting is at the end of financial year.Reporting under cost accounting is done as per the requirement of management or as-and-when-required basis.

ReportingIn financial accounting, costs are recorded broadly.In cost accounting, minute reporting of cost is done per-unit wise.

Fixation of Selling PriceFixation of selling price is not an objective of financial accounting.Cost accounting provides sufficient information, which is helpful in determining selling price.

Relative EfficiencyRelative efficiency of workers, plant, and machinery cannot be determined under it.Valuable information about efficiency is provided by cost accountant.

Valuation of InventoryValuation basis is cost or market price whichever is lessCost accounting always considers the cost price of inventories.

ProcessJournal entries, ledger accounts, trial balance, and financial statementsCost of sale of product(s), addition of margin and determination of selling price of the product.

S.No.Cost AccountingManagement Accounting

1The main objective of cost accounting is to assist the management in cost control and decision-making.The primary objective of management accounting is to provide necessary information to the management in the process of its planning, controlling, and performance evaluation, and decision-making.

2Cost accounting system uses quantitative cost data that can be measured in monitory terms.Management accounting uses both quantitative and qualitative data. It also uses those data that cannot be measured in terms of money.

3Determination of cost and cost control are the primary roles of cost accounting.Efficient and effective performance of a concern is the primary role of management accounting.

4Success of cost accounting does not depend upon management accounting system.Success of management accounting depends on sound financial accounting system and cost accounting systems of a concern.

5Cost-related data as obtained from financial accounting is the base of cost accounting.Management accounting is based on the data as received from financial accounting and cost accounting.

6Provides future cost-related decisions based on the historical cost information.Provides historical and predictive information for future decision-making.

7Cost accounting reports are useful to the management as well as the shareholders and creditors of a concern.Management accounting prepares reports exclusively meant for the management.

8Only cost accounting principles are used in it.Principals of cost accounting and financial accounting are used in management accounting.

9Statutory audit of cost accounting reports are necessary in some cases, especially big business houses.No statutory requirement of audit for reports.

10Cost accounting is restricted to cost-related data.Management accounting uses financial accounting data as well as cost accounting data.

http://www.tutorialspoint.com/accounting_basics/management_accounting_introduction.htm

Very Imp link

Useful Link

http://denniscaplan.fatcow.com/TOC.htm (All chapters description)

Academic literature traces the origin of managementaccounting from two different perspectives. Oneperspective takes the economic approach and issupported by authors such as Chandler (1977), Kaplan(1984) and Johnson and Kaplan (1987). Theother approach is supported by authors such asMiller and OLeary (1987), Hoskin and Macve(1988) and Ezzamel et al. (1990) and is referred toas the non-economic approach (Luft, 1997).1.1. Economic approach. Proponents of the economicapproach argue that management accountingpractices originated from the private sector to supportbusiness operations. For example, Johnson andKaplan (1987) state that the origins of modern managementaccounting can be traced to the emergenceof managed, hierarchical enterprises in the early 19thcentury. During this period the need to gain moreefficiency in production was realized. Factory ownersstarted hiring workers on a long-term basis in a centralizedworkplace and hence, the development ofhierarchical organizations. Factories were frequentlylocated in a considerable distance from the head officeof the owners, and an information system was required to increase and judge the efficiency of themanagers and workers at the factory. Before this time(the industrial revolution period) workers were hiredon a short-term basis and paid on work done, whilefactories were owner managed. The role of accountingwas, thus, limited to record keeping.

Boer (2000). He asserts thatmanagement accounting began under the label costaccounting in the distant past and split from costaccounting in the 1950s

Johnson and Kaplan (1987) conclude that managementaccounting systems evolved to motivate andevaluate the efficiency of internal processes and notto measure the overall profits of the organization.Hence, a separate financial accounting system hadto be operated to record transactions and processdata for preparing annual financial statements forthe owners and creditors of the firm

(IFAC, 1998) identified four stages in which managementaccounting has evolved: Stage 1 Prior to 1950, the focus was on costdetermination and financial control, through theuse of budgeting and cost accounting technologies. Stage 2 By 1965, the focus had shifted to theprovision of information for management planningand control, through the use of technologies suchas decision analysis and responsibility accounting. Stage 3 By 1985, attention was focused on thereduction of waste in resources used in businessprocesses, through the use of process analysisand cost management technologies. Stage 4 By 1995, attention had shifted to thegeneration or creation of value through the effectiveuse of resources, through the use oftechnologies, which examine the drivers of customervalue, shareholder value and organizationalinnovation

1.2. Non-economic approach. Proponents of the noneconomicapproach argue that in the nineteenth centuryand early twentieth century, control throughmeasuring individual performance and analyzing it bycomparison with norms or standards was developed ingovernmental institutions such as the military (Hoskinand Macve, 1988). Offices that collected nationalhealth statistics (Hacking, 1990) also introduced thesemeasures before they were common in firms. Theyargue that management accounting practices weredeveloped for disciplinary and academic evaluationpurposes and were not meant to support business asargued by the proponents of the economic approach

Objectives of MAThe phrase Management Accounting includes two words, Management and Accounting. It refers to Accounting for the Management. Management accounting is the procedure to develop management reports and accounts that present precise and timely financial and statistical information required by managers to make day-to-day and short-term decisions.

It demonstrates how the accounting function can be re-oriented so as to fit it within the structure of management activity

Management accounting creates monthly or weekly reports for an organization's internal audiences such as department managers and the chief executive officer. These reports characteristically demonstrate the amount of available cash, sales revenue generated, amount of orders in hand, state of accounts payable and accounts receivable, outstanding debts, raw material and inventory, and also comprises of trend charts, variance analysis, and other statisticsThe information in the management accounting system is used for Measurement, Control and Decision-making

Objectives of Management AccountingDecisionsThe main objective of an internal managerial accounting system is to provide information to managers so they can make sound decisions. The goal is not to comply with outside demands, such as those of bankers, but rather to capture valuable data that can be used to manage and control a business better. Since the internal needs of firms vary, so do their accounting systems -- what is good for one business may not work for another. Usually such systems are complex, gathering lots of details, depending on management requirements. For example, a manager may want to know the amount of materials a certain manufacturing process utilizes, and a good managerial accounting system should give him this information.PlanningManagers use the accounting system for budgeting and other planning functions. Budget numbers are saved and reports can be created and compared with figures that reflect actual revenues and expenses. Many budget-specific accounting software programs allow for creating "what-if" scenarios that can be very complex. Quite a few business owners make plans based on gut feelings, and using a managerial accounting system can help them in focusing on specific costs and possibilities. For example, a business needs to acquire an expensive machine, and a management financial system may help the business in timing the purchase when cash flows are planned to be the highest, avoiding debt.Related Reading:About Ethics in Managerial AccountingEfficienciesAnother goal of a managerial accounting system is to make work flows and processes more efficient and effective. Since most managerial systems are industry specific or customized for the business, they help in speeding up common daily processes, including paying the bills. The name of a vendor can be saved along with its address and other information, so that when you pay a bill, you can reuse this information, saving lots of time. This is the same situation if you have a system that caters to your receivable needs, where you can create invoices fast because most of the data has already been captured.Other ObjectivesInternal managerial accounting systems centralize lots of data, organizing and creating a structure where information is easy to find. For example, if you're interested in learning more details about inventory, you go to that area, not to fixed assets or budget modules. Management systems should be fast and flexible enough to cater to the needs of a business, including the ability to generate useful reports, such as trend analysis or other special reports. To be effective, management systems should be easy to use, requiring minimal training time. The more complicated an internal managerial accounting system is, the less effective it will be.

Objectives of Management AccountingLet us go through the objectives of management accounting:Planning and Formulating PoliciesIn the process of planning and formulating policies, a management accountant provides necessary and relevant information to achieve the targets of the company. Management accounting uses regression analysis and time series analysis as forecasting techniques.Controlling PerformanceIn order to assure effective control, various techniques are used by a management accountant such as budgetary control, standard costing, management audit, etc. Management accounting provides a proper managerial control system to the management. Reports are provided to the management regarding the effective and efficient use of resources.Interpreting Financial StatementCollecting accounting data and analyzing the same is a key role of management accounting. Management accounting provides relevant information in a systematic way that can be used by the management in planning and decision-making. Cash flow, fund flow, ratio analysis, trend analysis, and comparative financial statements are the tools normally used in management accounting to interpret and analyze accounting data.Motivating EmployeesManagement accounting provides a selection of best alternative methods of doing things. It motivates employees to improve their performance by setting targets and starting incentive schemes.Making DecisionsSuccess of any organization depends upon accurate decision-making and effective decision-making is based on informational network as provided by management accounting. Applying techniques of differential costing, absorption costing, marginal costing, and management accounting provides useful data to the management to aid in their decision-making.Reporting to ManagementIt is the primary role of management accounting to inform and advice the management about the latest position of the company. It covers information about the performance of various departments on regular basis to the management which is helpful in taking timely decisions.A management accountant also works in the capacity of an advisory to overcome any existing financial or other problems of an organization.Coordinating among DepartmentsManagement accounting is helpful in coordinating the departments of an organization by applying thorough functional budgeting and providing reports for the same to the management on a regular basis.Administrating TaxAny organization must comply with the tax systems prevailing in the country they are operating from. It is a challenge due to the ever-increasing complexity of the tax structure. Organization need to file various kinds of returns with different tax authorities. They need to calculate the correct amount of tax and assure timely deposit of tax. Therefore, the management takes guidance from management accountants to comply with the law of the land.

http://scc.losrios.edu/~burbagg/notes-c1.pdf Notes1. MANAGERIAL ACCOUNTING AND THE BUSINESS ENVIRONMENT Chap 12. COST TERMS, CONCEPTS & CLASSIFICATIONS Chap 23. JOB ORDER COSTING Chap 34. PROCESS COSTING Chap 45. COST BEHAVIOR, ANALYSIS AND USE Chap 56. ACRONYMS Chap 67. VARIABLE COSTING, A TOOL FOR MANAGEMENT Chap 78. ACTIVITY BASED COSTING A TOOL TO AID DECISION MAKING Chap 89. PROFIT PLANNING Chap 910. STANDARD COSTS AND BALANCED SCORECARD Chap 1011. FLEXIBLE BUDGETS AND OVERHEAD ANALYSIS Chap 1112. SEGMENT REPORTING AND DECENTRALIZATION Chap 1213. RELEVANT COSTS FOR DECISION MAKING Chap 1314. BUDGETING DECISIONS Chap 14

Ray Garrison & Noreen1. Managerial Accounting: An Overview 12. Managerial Accounting and Cost Concepts 243. Job-Order Costing 834. Process Costing 1415. Cost-Volume-Profit Relationships 1836. Variable Costing and Segment Reporting: Tools for Management 2297. Activity-Based Costing: A Tool to Aid Decision Making 272 8. Profit Planning 3359. Flexible Budgets and Performance Analysis 38310. Standard Costs and Variances 41811. Performance Measurement in Decentralized Organizations 47212. Differential Analysis: The Key to Decision Making 52713. Capital Budgeting Decisions 57914. Statement of Cash Flows 63915. Financial Statement Analysis 679Appendix A Pricing Products and Services 715Appendix B Profitability Analysis 731

ANALYSIS OF MANAGEMENT INFORMATION UNDERSTANDING FINANCIAL STATEMENTS FROM A MANAGERIAL POINT OF VIEW FINANCIAL ANALYSIS AS DIAGNOSTIC, EVALUATIVE, & PREDICTIVE TOOL UNDERSTANDING CASH FLOWS UNDERSTANDING COSTS CONSTRUCTS & BEHAVIORS TYPES OF COST ACCUMULATIONS Job order Costing Process Costing Activity-Based Costing Standard Costing DECISION FRAMEWORKS USING COSTS Cost-Volume Profit Analysis Differential Analysis Variable Costing and Absorption Costing BUDGETING FRAMEWORK & RESPONSIBILITY CENTERS SEGMENT REPORTING & DECENTRALIZATION CAPITAL BUDGETING

Colin Drury 6th Edition

Part 1Introduction to Management & Cost Accounting1. Introduction to Management Accounting2. An Introduction to Cost terms & concepts

Part 2Cost Accumulation for Inventory Valuation & Profit Measurement3. Accounting for direct costs4. Cost assignment for indirect costs5. Accounting entries for job costing system6. Process costing7. Joint & by Product costing8. Income effect of alternative cost accumulation systems

Part 3Information for Decision making1. Cost volume profit analysis2. Cost estimation & cost behavior3. Measuring relevant cost & revenues for decision making4. The application of linear programming for management accounting5. Activity based costing6. Decision making under conditions of risk & uncertainty7. Capital investment decisions

Part 4Information for Planning, Control & Performance Measurement1. The budgeting process2. Management control system3. Standard Costing & Variance analysis

Introduction to Management Accounting (Chapter 1)

The users of Accounting informationMajor Differences between Financial and Managerial AccountingThe Decision Making ProcessBasic Cost TerminologyClassification of cost

An Introduction to Cost terms and Concepts(Chapter 2 & 9)

Basic Cost TerminologyDirect and Indirect CostsFactors Affecting Direct/Indirect Cost ClassificationCost BehaviorCost ObjectsCost Behavior SummarizedOther Cost ConceptsAvoidable and Unavoidable costSunk CostRelevant and Irrelevant costPeriod and Product costOpportunity costIntroduction to decision making Single limiting factor decision makingDiscussion Questions, Problems

Decision Making , Measuring Relevant costs and revenues for Decision Making (Chapter 9)

Limiting factor decision Making Product mix decisions when capacity constraints existOutsourcing and make or buy decisions Relevant cost decision Making Relevant cost of Material, Labor, Overheads, Machinery and cost of tender and feasibility studies.Minimum Pricing of the projectsDiscussion Questions, Problems

Cost-Volume-Profit Analysis (Chapter 8)

The accountants cost volume Profit ModelContribution MarginBreakeven Point in terms of unitsBreakeven Point in terms of RupeesContribution Margin ratioUnits required to achieve a Desired ProfitSales required to achieve a Desired ProfitMargin of SafetyCVP, GraphicallyMulti-product cost volume profit analysis

Discussion Questions & Problems

Master Budget and Responsibility Accounting (Chapter 15)Definition of Budget Different Types of Budgetsa.Incremental budgetingb.Zero based budgetingc.Rolling BudgetThe Ongoing Budget ProcessAdvantages of BudgetsWhy we prepare BudgetsOperational Budgetsa.Sales Budgetb.Production budget c.Material Consumption budgetd.Material purchase budgete.Direct Labor budgetf.Factory overhead budgetg.Selling and Admiration budgeth.Master Budgetsi.Components of Master BudgetsBehavioral Aspects of Budgeting

Discussion Questions & Problems

Flexible Budgets and Cash budgeting (Chapter 15)

Why we prepare flexible budgetsHow to prepare flexible budgetsPreparation of cash budgetPreparation of Cash ladders

Discussion Questions & Problems

Mid Semester Exam

Standard Costing and Variance Analysis (Chapter 17 & 18)Basic ConceptsEstablishing cost standardsPurpose of Standard CostingVariance analysisMaterial VariancesMaterial Price VarianceMaterial Usage VarianceTotal material varianceLabor Rate varianceLabor efficiency varianceTotal labor varianceVariable Overhead varianceFixed Overhead variancesSales variancesReconciliation of Standard cost with actual costReconciliation of Budgeted Profit with actual profit

Discussion Questions & Problems

Quantitative models for the Planning and Control of Stocks (Chapter 23)Why do firms hold stockHolding costOrdering costBuffer stockLead timeRe order level Economic Order quantityMaximum levelMinimum levelEOQ and Discounts

Discussion Questions & Problems

Accounting Entries for a Job Costing System (Chapter 4)Material recording proceduresRecording the purchase of Raw MaterialsRecording the issue of materialsAccounting procedure for labor costsAccounting procedure for manufacturing overheadsPreparing WIP AccountsCost flow from WIP to FG and to P&LInterlocking accounts

Discussion Questions & Problems

Cost Assignment and Activity Based Costing (Chapter 3)How to allocate cost to productsHow to allocate Production overheadsWhat is predetermined absorption rateWhat is over and under absorbed overheadsHow to calculate over and under absorbed overheadsMarginal and Absorption costingThe emergence of ABC systemsTraditional vs ABC costing SystemsVolume Based and Non Volume based cost drivers

Discussion Questions & Problems

Notes MA IndiaDefinition The term Management Accounting, covers all those services by which the accounting department can assist the top management and other departments in the formation of policy, control of execution and appreciation of effectiveness.

It constantly needs accounting information on which to base its decision. A decision based on data is usually correct and the risk of erring is minimized. Accounting information should be recorded and presented in the form of reports at such frequent intervals, as the management may want.

It is to be understood here that the accounting information has no end in itself; it is a means to an end.

Management accounting has no set principles such as the double entry system of bookkeeping. In place of generally accepted accounting principles, the philosophy of cost benefit analysis is the core guide of this discipline. It says that no accounting system is good or bad but is can be considered desirable so long as it brings incremental benefits in excess of its incremental costs.

FUNCTIONS OF MANAGEMENT ACCOUNTINGThe basic function of management accounting is to assist the management inperforming its functions effectively. The functions of the management areplanning, organizing, directing and controlling. Management accounting helpsin the performance of each of these functions in the following ways:(i) Provides data: Management accounting serves as a vital source ofdata for management planning. The accounts and documents are arepository of a vast quantity of data about the past progress of theenterprise, which are a must for making forecasts for the future.(ii) Modifies data: The accounting data required for managerial decisionsis properly compiled and classified. For example, purchase figures fordifferent months may be classified to know total purchases madeduring each period product-wise, supplier-wise and territory-wise.(iii) Analyses and interprets data: The accounting data is analyzedmeaningfully for effective planning and decision-making. For thispurpose the data is presented in a comparative form. Ratios arecalculated and likely trends are projected.(iv) Serves as a means of communicating: Management accountingprovides a means of communicating management plans upward,downward and outward through the organization. Initially, it meansidentifying the feasibility and consistency of the various segments ofthe plan. At later stages it keeps all parties informed about the plansthat have been agreed upon and their roles in these plans.(v) Facilitates control: Management accounting helps in translatinggiven objectives and strategy into specified goals for attainment by aspecified time and secures effective accomplishment of these goals inan efficient manner. All this is made possible through budgetarycontrol and standard costing which is an integral part of managementaccounting.(vi) Uses also qualitative information: Management accounting doesnot restrict itself to financial data for helping the management indecision making but also uses such information which may not becapable of being measured in monetary terms. Such information maybe collected form special surveys, statistical compilations, engineeringrecords, etc.

Functions of MA

Planning: He has to establish, coordinate and administer as anintegral part of management, an adequate plan for the control of theoperations. Such a plan would include profit planning, programmes ofcapital investment and financing, sales forecasts, expenses budgetsand cost standards.(ii) Controlling: He has to compare actual performance with operatingplans and standards and to report and interpret the results ofoperations to all levels of management and the owners of the business.This id done through the compilation of appropriate accounting andstatistical records and reports.(iii) Coordinating: He consults all segments of management responsiblefor policy or action. Such consultation might concern any phase of theoperation of the business having to do with attainment of objectivesand the effectiveness of the organizational structures and policies.

Box 1.1Features of data Provided by Financial Provided by Accounting Management accounting1. Period After a stated period At frequent intervals2. Time Historical data Current and future data3. Unit of expression Money only Any statistical unit4. Nature Actual data Projected data5. Specificity Aggregates Detailed analysis6. Description Money consequences Events7. Reality Objective Subjective8. Precision Pie to Pie accuracy May be guess-work9. Principles Double entry system Cost benefit analysis10. Legality Obligatory Optional11. Purpose Overview of entire Analytical details of such Business activity activities as call for decisions

LIMITATIONS OF MANAGEMENT ACCOUNTINGManagement accounting, being comparatively a new discipline, suffers from certain limitations, which limit its effectiveness. These limitations are as follows:

1. Limitations of basic records: Management accounting derives its information from financial accounting, cost accounting and other records. The strength and weakness of the management accounting, therefore, depends upon the strength and weakness of these basic records. In other words, their limitations are also the limitations of management accounting.2. Persistent efforts. The conclusions draws by the management accountant are not executed automatically. He has to convince people at all levels. In other words, he must be an efficient salesman in selling his ideas.3. Management accounting is only a tool: Management accounting cannot replace the management. Management accountant is only an adviser to the management. The decision regarding implementing his advice is to be taken by the management. There is always a temptation to take an easy course of arriving at decision by intuition rather than going by the advice of the management accountant.4. Wide scope: Management accounting has a very wide scope incorporating many disciplines. It considers both monetary as well as non-monetary factors. This all brings inexactness and subjectivity in the conclusions obtained through it.5. Top-heavy structure: The installation of management accounting system requires heavy costs on account of an elaborate organization and numerous rules and regulations. It can, therefore, be adopted only by big concerns.6. Opposition to change: Management accounting demands a break away from traditional accounting practices. It calls for a rearrangement of the personnel and their activities, which is generally not like by the people involved.7. Evolutionary stage: Management accounting is still in its initial stage. It has, therefore, the same impediments as a new discipline will have, e.g., fluidity of concepts, raw techniques and imperfect analytical tools. This all creates doubt about the very utility of management accounting

Lecture 2 Feb 10, 2016

Oral Assignment:Which series of steps (logically) do we need to take so as to learn the management accounting academically & make application thereof in an office. (Hint: Recall steps that we learnt in process for Financial Accounting)

Which part of accounting information system initiates the

IntroductionIn the initial stages cost accounting was merely considered to be a technique for ascertainment of costof products or services on the basis of historical data. In course of time due to competitive nature of the market, it was realized that ascertainment of cost is not as important as controlling costs. Hence, cost accounting started to be considered more as a technique for cost control a s compared to cost ascertainment.Due to technological development in all fields, now cost reduction has also come within the ambit of cost accounting. Cost accounting is thus concerned with recording, classifying and summarizing costs fordetermination of costs of products or services, planning, controlling and reducing such costs and furnishing of information to management for decision making.

CIMA Management Accounting

1.2 Why organisations need costing systemsAn organisations costing system is the foundation of the internal financial information systemfor managers. It provides the information that management needs to plan and control theorganisations activities and to make decisions about the future. Examples of the type of information provided by a costing system and the uses to which it might be put includethe following. Actual unit costs for the latest period; could be used for cost control by comparing witha predetermined unit standard cost, which would also be provided by the costing system.Could also be used as the basis for planning future unit costs and for decisions aboutpricing and production levels. For example, a manager cannot make a decision aboutthe price to be charged to a customer without information which tells the manager howmuch it costs to produce and distribute the product to the customer. Actual costs of operating a department for the latest period; could be used for cost controlby comparing with a predetermined budget for the department. Could also be usedas the basis for planning future budgeted costs and for decisions such as outsourcing.For example, a manager might be considering the closure of the packing department andinstead outsourcing the packing operations to another organisation. In order to makethis decision the manager needs to know, among other things, the actual cost of operatingthe packing department. The forecast costs to be incurred at different levels of activity. Could be used for planning,for decision making and as a part of cost control by comparing the actual costswith the forecasts. For example, a manager cannot make a well-informed decision aboutthe appropriate production level for the forthcoming period unless information is availableabout the costs that will be incurred at various possible output levels.This is by no means an exhaustive list of the information that is provided by a costingsystem. However, it should serve to demonstrate that organisations need costing systemsthat will provide the basic information that management requires for planning, controland decision-making.