Management Accounting: An introduction

BANKING DIPLOMA EXAMINATION

Banking Diploma Courses in Bangladesh under The Institute of Bankers, Bangladesh (IBB)

Management Accounting-JAIBB

Management Accounting: An Introduction

Q.1 Define ‘Management Accounting’? State its main characteristics and objectives.

Ans. Any form of accounting which enables a business to be conducted more efficiently can be regarded as management accounting.

Accounting to T.G. Rose “Management accounting is the adaptation and analysis of accounting information, and its diagnosis and explanation in such a way as to assist management.

Characteristics of Management Accounting:-

1. Management accounting enables future forecasting.

2. It is selective in nature.

3. Supplies Data, Not Decisions.

4. Integrated system.

5. It is a service functions which provides information to the management for formulating policies.

6. Established financial accounting rules are not followed in Management Accounting.

7. Management Accounting emphasizes, specially, on cause and effect relationship.

8. Emphasis is placed on nature of Cost Elements.

9. Management accounting is a developing subject.

10. Potentiality of development as a profession.

Objectives of management Accounting :-

The main objective of management accounting is to provide information for successfully carrying out the managerial duties. The objectives of management accounting are as under:-

1. To assist in Planning

2. Helps is organizing.

3. To assist in Interpreting Financial Information.

4. To assist in Controlling Performance.

5. To assist in Co-ordination.

6. Help in Motivating Employees.

7. Helps in analysis and interpreting the financial information.

8. To assist in decision making.

9. Helpful in reporting.

10. Helpful in fixing responsibility.

11. To Assure Accountability.

Q.2 What are the tools and techniques used in management Accounting?

Ans.  Following tools and techniques are used in management accounting:-

1. Financial Planning

2. Analysis of financial statement

3. Historical Cost Accounting.

4. Responsibility Accounting.

5. Control Accounting

6. Revaluation Accounting

7. Decision Accounting

8. Statistical Methods

9. Management Information System

10. Mathematical Techniques

11. Taxation

Q.3 Describe in brief the functions of management accounting?

Ans.  Management Accounting helps the management is two ways:-

                 I. Providing necessary accounting information to management

                II. Helps in various activities and tasks performed by the management.

I. Providing necessary accounting information to management:-

(a) Measuring:- For helping the management in measuring the work efficiency in different areas it is done on the past and present incidents with context to the future. In standard costing and budgetary any control, standard and actual performance is compared to find out efficiency.

(b) Recording:- In management accounting both the quantitative and qualitative types of data are included and this accounting is done on the basis of assumptions and even those items which cannot be expressed financially are included in management accounting.

(c) Analysis:- The work of management accounting is to collect and analyze the fact related to the managerial problems and then present them in clear and simple way.

(d) Reporting:- For the use of management various reports are prepared. Generally two  types of reports are prepared:- 

a. Regular Reports

b. Special Reports.

II - Helping in Managerial works and Activities:-

The main functions of management are planning, Organizing, staffing, directing and controlling. Management accounting provides information to the various levels of managers to fulfill the above mentioned responsibilities properly and effectively. It is helpful in various management functions as under:-

(a) Planning:- Through management accounting forecasts regarding the sales, purchases, production etc. can be obtained, which helps in making justifiable plans. The tools of management accounting like standard costing, cost – volume – profit, analysis etc. are of great managerial costing, help in planning.

(b) Organizing:- In management accounting whole organization is divided into various departments, on the basis of work or production, and then detailed information are prepared to simplify the thing. The budgetary control and establishing cost centre techniques of management accounting helps which result in efficient management.

(c) Staffing:- Merit rating and job evaluation are two important functions to be performed for staffing. Generally only those employs are useful for the organization, whose value of work done by them is more then the value paid to them.

Thus by doing cost-benefit analysis management accounting is useful in staffing functions.

(d) Directing:- For proper directing, the essentials are co-ordination, leadership, communications and motivation. In all these tasks management accounting is of great help. By analyzing the financial and non financial motivational factors, management accounting can be an asset to find out the best motivational factor.

Q.4 Explain the scope of management accounting and discus how it serves the management needs?

Ans. Scope of management accounting: - Management accounting has a vast area which includes financial accounting and extends to the functions of a system of cost accountancy, budgetary control and statistical methods. The scope of management accounting includes:-

1. The management accounting is likely to evaluate the variation by reasons and the accountability and to put forward suitable corrective measures.

2. Analyzing and interpreting accounting and other figures to craft it logically and usable to management.

3. Configuration, installation and operation of accounting cost accounting and information systems, as a result it has to utilize these systems to get together the altering needs the of the management functions.

4. Provide system and techniques to estimate the recital of the right managements in the beam of the objectives of the firm.

5. The management accounting presents the history the figures in such a way as to reproduce the trends of events to the management.

 6. Providing mean of communicating management plans to the various levels of the organization and assists the management in directing their activities

7. It is support management in decision making by:-

         a. Providing significant accounting data,

         b. Analyzing the outcome of alternative proposals on the profits and the situation of the enterprise.

Serve Management Needs:- Management accounting’s main function is to assist the management. It presents comprehensive accounting information to the management to the facilitate them to keep useful control over stores and stock, to increase efficiency of the organization and check wastage and losses. The various advantages resulting by the management from a high – quality system of accounting are as follows:-

1. Management accounting helps in organizational efficiency.

2. Management accounting check and remover wastages.

3. Management accounting formulates comparisons.

4. Helps in price fixing.

5. Management accounting helps in maximizing profitability.

6. Management accounting protects against Seasonal fluctuations and trade Cycle.

7. Management accounting helps in growth of National Economy.

8. Management accounting helps in performance appraisal of business.

Q.5 Give limitation of management Accounting?

Ans. The main limitations are as follows:-

1. It is based on historical data.

2. Not an alternative to administration.

3. Lack of knowledge of Related Subjects.

4. Lack of continuity in efforts.

5. Effect of human factor.

6. Lack of Objectivity.

7. Costly installation.

8. Evolutionary stage.

9. Effect of time factor.

10. Psychological resistance.