Management accounting ! Scope of management accounting

Scope of management accounting

Management accounting is anew approach to Accounting. It provides techniques for the interpretation of Accounting data. It also helps in Developing realistic approach  to future course of action. The main Aim is to helps management in it's functions of planning, directing and Controlling. Management accounting is related to a number of fields. At the seven International Conference of accountant held in Amsterdam in 1957, the main emphasis was on cost accounting, Budgetary control, material control, interim Reporting, Determination of the most efficient and economical accounting system, Special cost and Economic studies and  assessing management in interpreting financial data.

The following facts of management accounting are if a great significance and firm the scope of this subject.

(1) Financial Accounting : Financial Accounting deals with the historical data. The record facts about an organization is useful for planning the future course of action. Though planning is always for the future but still it has to be based on past and present data. The Control aspects too is based on financial data. The performance appraisal is based on recorded facts and figures. So management Accounting is closely related to financial accounting.

(2) Cost accounting : Cost Accounting provides various techniques for determining costs of manufacturing products or costs of providing services. It uses financial data for finding out cost of various jobs, products or processes. The system of standard costing, marginal costing, differential costing and opportunity costing are all helpful to the management for planning various business activities. 

Costs Accounting also helps in finding out economical and non economical fields of production. The efficiency of different department is judged by setting up standard and finding out variances. So cost Accounting is an essential part of management accounting.

(3) Financial management : Financial management is concerned with the planning and controlling of financial resources of the firm.  It deals with the raising of funds and their effective utilisation. It main Aim is to use Business funds in such a way that earning are maximized. Finance has become so much important for every business undertaking that all managerial activities are concerned with it. Financial viability of proposition influence decision on them. Although financial management has emerge as separate subject. Management accounting includes and extend to the Operation of financial management also.

(4) Budgeting and Forecasting : Budgeting means expressing the plans, policies and goals of the enterprise for definite period in future. The Target are set for different department and responsibility is fixed for achieving these targets. The comparison of actual performance with budgeted figure will give an idea to the management about the performance of different departments. Forecasting, on the other hand, is a prediction of what will happen as a result of a giving set of circumstances. Forecasting is a judgement wherese budgeting is an Organisational object. Both budgeting and forecasting are useful for management accountant in planning various activities.

(5) Inventory Control : Inventory is used to denote stock of raw materials goods in the process of manufacturer and finished products. Inventory has a special significance in accounting for determining correct income for a given period. Inventory Control is significant as it involves large sums. The management should determine different levels of stocks, i.e. minimum level, maximum level, re ordering level for inventory control. The control of Inventory will help in controlling Costs of products, Management will need effective inventory control for controlling stocks. Management Accountant will guide management as to when and from where to purchase and how much to purchase. So the study of Inventory Control will be helpful for taking managerial decisions.

(6) Reporting to management : One of the function of Management Accountant is to keep the management informed of various activities of the concerns so as to assist it in controlling the enterprise. The Report are presented in the form of graphs, diagrams, index numbers or other statistical techniques so as to make them easily understandable. The management Accountant send interim reports to the management and these reports may be monthly, quarterly, half yearly. The Report may cover profit and loss statement, cash and find flow statements, stock report, absentee Report, and report on order in hand etc. These reports are helps in giving constant review of the Working of the business.

(7) Interpretation of data : The management accountant interprets various financial statements to the management. The statements give an idea about the financial and earning position of the concerns. These statements may be studied in comparison to statement of earlier periods or in comparison with the statement of similar other concerns. The significance of these reports is explained to the management in a simple language. If the statement are not properly interpreted then wrong conclusion may be drawn. So interpretation is as important as compiling of financial statement.

(8) Control procedures and methods : Control procedures and methods are needed to use various factors of production in a most economical way. The studies about costs and profit are useful for using Economic resources effectively and efficiently.

(9) Internal Audit : Internal Audit system is necessary to judge the performance of every department. The actual performance of every department and individuals is compared with the pre determined standard. Management is able to know deviation in performance. Internal Audit helps management in fixings responsibility of different individuals.

(10) Tax accounting : In the present complex tax Systems, tax planning is an important part of management accounting. Income statement are prepared and tax Liabilities are calculated. The management in informed about the tax burden from Central government, state government and local authorities. Various tax returns are to be filled with different department and tax payments are to be made in time. Tax accounting comes under the purview of management accountant duties.

(11) Office services : Management Accountant may be required to control an office. He will be expected to deal with the data processing, filling, copying, duplicating,  communicating, etc. He will also be reporting about the utility of different office machines.