Management Accounting

What is the Scope of Management Accounting?

Scope of management accounting – The scope of management accounting is very wide and is spread over to a large number of techniques which helps in taking managerial decisions. It includes not only presentation of accounting data to management but financial analysis and interpretation of business operation are also included under it. The main aim of management accounting is to help the management to perform its functions like planning, directing and controlling smoothly in order to develop efficient and economical accounting system through budgetary control, standard costing, inventory control etc.

Scope of Management Accounting

1. Financial Accounting : Financial accounting is related to recording of the day to day business transactions in a chronological order. The recording of these transactions helps to prepare financial statements like Manufacturing A/c, Trading A/c, Profit & Loss A/c and Balance Sheet. These statements show the results of business operation. Management cannot obtain complete control and co-ordination of operations without proper financial accounting system. Hence the need of proper financial accounting can not be denied after planning and financial analysis.

2. Cost Accounting : Cost accounting helps to calculate the cost per unit of each product or service provided. Costing techniques and methods help in cost analysis and cost control. Various tools of costing like budgeting, standard costing, marginal costing, diferential costing and opportunity cost analysis are helpful to the management for profit planning and cost control.

3. Tax Accounting : Tax planning, computation of tax as per the law, filing income tax return and making payment of tax are the activities to be undertaken for proper management accounting in any organisation. The management is reported about tax burden from central government and local authorities. Thus, the tax accounting and filing of return to various offices is within the scope of management accounting.

4. Financial Management : Financial management is concerned with the planning and controlling of resources and raising of finance, investing of funds and deciding about dividend policy. Thus, financial management deals with the raising of funds and their proper utilisation to maximise as a separate subject for the study but objective is just to help in managerial decisions in financial areas. Thus, financial management is a part and parcel of management accounting. an the earnings of an organisation. Now a days financial management has been developed

5. Reporting : Management accounting includes reporting function also. Reporting is done regularly at following two levels:

  • Internal Reporting : Report prepared for the use management informing about achievements, performances, targets, variance, breakdown, appraisal etc., are included under internal reporting.
  • External Reporting : It includes income statement, position statement, fund flow & cash flow, ratio analysis etc. for the use of creditors, bankers, shareholders, public and tax authorities etc. Internal reports may be daily, weekly, monthly or special reports related to a particular event etc. while external reports are generally yearly.

6. Revaluation Accounting : Assets and liabilities of an organisation are valued at their book value but there is a regular change in the purchasing power of money due to price rise or inflation. So, real current values of different assets are relevant to show the current economic position of business. Thus, the change due to inflation has a great impact on managerial decision to accommodate the current prevailing monetary effects.

7. Auditing : The main purpose of the accounting is to show true and fair picture of the organisation. For this, auditors are appointed to check the recording of transactions against the proper vouchers, evidences, accounting principles. It is also checked under auditing whether the decisions taken for running the organisation were in the best interest of the enterprise or not. For verification, external and internal audit are the integral part of the accounting and these help the management in carrying its functions more efficiently and effectively. Thus, we can say that auditing is within the scope of the study of management accounting.

8. Business Laws : A business is to be operated within the legal framework of the country. To protect the interests of various parties like shareholders, creditors, bankers, public, government employees etc. different legal Acts have been enacted, passed, implemented and amended from time to time in order to make them more relevant and effective. Company Law. Contract Act, Safety Act, Wages Act, Income Tax Act etc. are very much important in taking managerial decisions. Hence, this role of a manager and management accountant is self explanatory.

9. Knowledge of Statistical Techniques : Managerial decision making statistical techniques goes hand in hand. Quality control is very vital to the organisation to face competition within the country and abroad as India is open now to the world through liberalisation, globalisation, acquisition and mergers. The knowledge of statistical techniques like sampling, averages, dispersion, correlation, regression and probability is necessary for decision making, analysis interpretation, reporting etc. Operational research, Logistics including PERT&CPM are the basic tools to help managers. Thus, these techniques are within the scope of management accounting.

10. Economic, Social and Environmental Science : A business draws its resources (Land Labour, Capital and Enterpreneurship) from society. A business also operates for the society. So, a business has got the social responsibility to make the economic and social environment more eco- friendly and social friendly. Contribution of business world to the society is very vital and of great value specifically to a developing economy like India. A country in which service sector is more developed, develops at a faster rate. Thus, the proper knowledge and understanding of the environment is highly important to management for achieving the goals and objectives of organisation. They h ave their own impact on managerial decision making process.

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