management accounting

 Q1. What do you understand by management accounting? Explain its importance. How is it different from financial accounting?

Answer:- Meaning of Management Accounting

Management accounting is also known as managerial accounting method.

Management accounting is made up of two words: Management + Accounting.

Every business enterprise is a group entity which cannot work on its own. That is, it needs a driving force to run it, which is called management.

And accounting means systematically writing, classifying, summarizing and presenting transactions so that they can be analyzed and interpreted.

In simple words, Management accounting is a branch of accounting that is not only concerned with the analysis and interpretation of transactions, but also helps management in various managerial functions like planning, organizing, controlling, directing, coordinating, motivating, decision-making, etc.

Definitions of Management Accounting

The main definitions of management accounting given by various scholars are as follows:

According to Anthony: Management accounting is concerned with those accounting related information which is useful for management.

Characteristics of Management Accounting

The main characteristics of management accounting are as follows:

1. Selective Nature: Management accounting is selective in nature because under it, only that information which is useful for management is analyzed.

2. Use of various methods: In management accounting, various methods are used.

For example:-Financial Analysis, Decision Accounting, Budgetary Control, Standard Costing, Marginal Costing etc.

3.Not based on fixed rules :-Management accounting is not based on fixed rules like financial accounting.

4.Providing data, not decisions :-Management accounting provides data, not decisions.

Scope of Management Accounting

The scope of management accounting is very wide. The following are included within it:

1.Financial Accounting :-Financial accounting means recording transactions in a systematic manner, classifying, preparing summaries, and presenting them. So that they can be analyzed and interpreted.

2.Cost Accounting :- Cost accounting is a branch of accounting. Under which the accounts of various expenses related to the production of an item are maintained in such a way. that Along with finding the total cost of the item, the cost per unit can also be found.

3.Tax accounting :-Tax accounting is a branch of accounting, under which a person's tax liabilities are determined.

4.Budgeting:-Budgeting refers to a process. Under which the following are included

(1) Budget (c) Budgetary control

Functions / Importance / Utility / Objectives of Management Accounting

The main functions of management accounting are as follows:

1. Assisting in planning:- Management accounting assists in planning.

2. Assisting in organizing:- Management accounting assists in organizing.

3. Assisting in coordination:- Management accounting assists in coordination.

4.Assisting in motivation :- Management accounting assists in motivation.

5.Assisting in control :- Management accounting assists in control.

6.Assisting in direction:- Management accounting assists in direction.

7.Assisting in decision making -Management accounting assists in decision making.

Tools and techniques of management accounting

The major techniques of management accounting are as follows:

1. Financial Analysis :-This is the first and most important technique of management accounting. Under which ratio analysis, fund flow statement, and cash flow statement, etc. are included.

2. Decision Accounting :-This is the second and most important technique of management accounting. Under which break-even analysis is included.

3.Budgetary Control :-This is the third and most important technique of management accounting. Under which various types of budgets are included.

4.Standard Costing Method:- This is the fourth and most important technique of management accounting, under which the standard cost of any item is determined, and thereafter the reasons for the difference are found out by comparing it with its actual cost.

5.Marginal Costing Method:- This is the fifth and most important technique of management accounting, under which only variable expenses are included to determine the cost.