Nature and scope of management accounting
Answers
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(i) Technique of Selective Nature:
Management Accounting is a technique of selective nature. It takes into consideration only that data from the income statement and position state merit which is relevant and useful to the management.
(ii) Provides Data and not the Decisions:
The management accountant is not taking any decision bu.: provides data which is helpful to the management in decision-making. It can inform but cannot prescribe.
(iii) Concerned with Future:
Management accounting unlike the financial accounting deals with the forecast with the future.
Scope of Management Accounting:
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The scope of management accounting is very wide and broad-based. It includes all information which is provided to the management for financial analysis and interpretation of the business operations.
Following field of activities are included in the scope of this subject:
(i) Financial Accounting:
Financial accounting though provides historical information but is very useful for future planning and financial forecasting.
(ii) Cost Accounting:
It provides various techniques of costing like marginal costing, standard costing, differential and opportunity cost analysis, etc., which play a useful role n t operation and control of the business undertakings.
(iii) Budgeting and Forecasting:
Forecasting on the various aspects of the business is necessary for budgeting.
Answer:
The nature and scope of management accounting.
Management accounting is not a specific system of accounting. It could be any form of accounting which enables a business to be conducted more effectively and efficiently
accounting is a service function and it provides necessary information to different levels of management. Management accounting involves the presentation of information in a way it suits managerial needs.
The accounting data collected by accounting department is used for reviewing various policy decisions.
Cause and effect analysis: The role of financial accounting is limited to find out the ultimate result, i.e., profit and loss; management accounting goes a step further. Management accounting discusses the cause and effect relationship. The reasons for the loss are probed and the factors directly influencing the profitability are also studied. Profits are compared to sales, different expenditures, current assets, interest payables, share capital, etc.
Use of special techniques and concepts: Management accounting uses special techniques and concepts according to necessity to make accounting data more useful. The techniques usually used include financial planning and analyses, standard costing, budgetary control, marginal costing, project appraisal, control accounting, etc.
Taking important decisions: It supplies necessary information to the management which may be useful for its decisions. The historical data is studied to see its possible impact on future decisions. The implications of various decisions are also taken into account.
Achieving of objectives: Management accounting uses the accounting information in such a way that it helps in formatting plans and setting up objectives. Comparing actual performance with targeted figures will give an idea to the management about the performance of various departments. When there are deviations, corrective measures can be taken at once with the help of budgetary control and standard costing.
No fixed norms: No specific rules are followed in management accounting as that of financial accounting. Though the tools are the same, their use differs from concern to concern. The deriving of conclusions also depends upon the intelligence of the management accountant. The presentation will be in the way which suits the concern most.
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