Scope Of Management Accounting

  1. Financial Accounting: Financial Accounting deals with the historical data. The recorded facts about an organization are 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 aspect 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.


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


  1. Financial Management: Financial Management is concerned with the planning and controlling of the financial resources of the firm. It deals with raising of funds and their effective utilization so to maximize earnings. Finance has become so important for every business that all managerial activities are connected with it. Financial viability of various propositions influence decisions on them. Therefore management accounting includes and extends to the operation of financial management also.


  1. Budgeting and Forecasting: Budgeting means expressing the plans, policies and goals of the enterprise for a definite period in future. The targets are set for different departments and responsibility is fixed for achieving these targets. The comparison of actual performance with budgeted figures 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 given set of circumstances. Both budgeting and forecasting are useful for management accountant in planning various activities.


  1. Inventory Control: Inventory is used to denote stock of raw materials, goods in the process of manufacture 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, ie. minimum level, maximum level, re- ordering level for inventory control. The control of inventory will help in controlling costs of products. 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.


  1. Reporting to Management: One of the functions of management accountant is to keep the management informed of various activities of the concern so as to assist it in controlling the enterprise. The reports are presented in the form of graphs, diagrams, index numbers or other statistical techniques so as to make them easily understandable. The management accountant sends interim reports to the management and these reports may be monthly, quarterly, half – yearly. The reports may cover profit and loss statement, cash and found flow statements, stock reports, absentee reports and reports on orders in hand, etc. These reports are helpful in giving a constant review of working of the business.


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


  1. Control procedures and Method: Control procedures and methods are needed to use various factors of production in a most economical way. The studies about cost, relationship of cost and profits are useful for using economic resources efficiently and economically.


  1. Internal Audit: Internal audit system is necessary to judge the performance of every department. The actual performance of every department and individual is compared with the pre-determined standards. Management is able to know deviations in performance. Internal audit helps management in fixing responsibility of different individuals.


  1. Tax Accounting: In the present complex tax systems, tax planning is an important part of management accounting. Income statements are prepared and tax liabilities are calculated. The management is informed about the tax burden from central government, state government and local authorities. Various tax returns are to be filed with different departments and tax payments are to be made in time. Tax accounting comes under the purview of management accountant’s duties.


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


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