DAIBB- Management Accounting Answers: Definition of Management Accounting and Scope of Management Accounting


Management Accounting also called managerial accounting or cost accounting is the process of analysing banking or business costs and operations to prepare internal financial report records and account to aid managers decision making process in achieving banking or business goals. In other words it is the act of making sense of financial and cost data and translating the data into Useful information for management and officers within a bank or an organisation.

In ordinary language in a system of accounting which Asset Management in carry out its functions more efficiently may be termed as Management Accounting.

The Institute of Chartered Accountants of England and Wales has stated," any form of accounting which enables a business to be conducted more efficiently can be regarded as Management Accounting."

Smith has stated," Management accounting is a more intimate merger of the two older professions of Management and Accounting." 

From the above definitions and discussions we can sum up that management accounting is concerned with accounting information which is useful to the management.

Scope of Management Accounting

Scope of management accounting is very wide and broad based. It includes all the information which is provided to the management for financial analysis and interpretation of the business operations. 

The main purpose of management accounting is to utilise the accounting information in solving the business or banking problems and taking scientific decisions. Moreover the scope of management accounting is very wide. Therefore, it is very difficult to pinpoint the exact scope of Management Accounting. However the scope of management accounting are explained below:

  1. Financial accounting: financial accounting is relating to the recording of Banking transactions immediately soon after the transaction taken place or afterwards incurring the expenses. The banking transactions may be related to income expenses inventory movement, assets ,liabilities cash receipts and payments and so on. The process of financial accounting includes the preparation of financial statements regularly at the end of each accounting year following the operational results for a definite period. The term financial statements includes profit and loss account and balance sheet. 
  2. Cost Accounting: Cost accounting is concerned with the ascertainment of various elements of course for different banking operation and activities. Discourse data are used in the management accounting system for further analysis so as to solve business banking problems and take quality decisions.
  3. Budgeting and forecasting: Management accounting includes control and forecasting techniques as well. Budgetary control system the budgets are prepared on functional basis and measure the actual performance find the difference between the actual and standard for taking correct actions. In this way budgeting assist the management for identifying responsibility and  ensures co-ordination.
  4. Revaluation accounting: This type of accounting system is ensuring that the capital is maintained in text in real terms. By keeping this fact in mind correct amount of profit is calculated and used for managerial decision making.
  5. Cost control procedures: cost control procedures are an integral fear of the management accounting process. It includes inventory control cost control time control budgetary control and standard costing system.
  6. Statistical methods: in order to analyse the financial accounting data, table, diagrams and graphs are used in the management accounting system. These are nothing but statistical methods.
  7. Inventory control: inventory control reference to exercising control over the utilisation of raw materials, processing of work in progress and disposal of finished goods for a specific period.
  8. Reporting: Reporting can be divided into two types. They are internal reporting and external reporting. Internal reporting is supplying information to the top management or other internal users. Where external reporting is supply information to the outsiders; for instance the shareholders ,banks ,the government etc.
  9. Taxation: Taxation includes the computation of Corporate income tax in accordance with the tax laws, filing of returns and making tax payments. 
  10. Interpretation: interpretation means the explanation of the presented data into meaningful order. Management accounting explain the data in a meaningful way so that everyone can take decision based on the data. 
  11. Evaluating the performance: it is important to evaluate the performance of an organisation within a specific period of time. Management accounting can help you in this regard. It evaluates the performance keeping in mind the predetermined goals.

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