Management and Cost Accounting Theory

MANAGEMENT ACCOUNTING

What is Accounting?

• Need for Accounting –

o Increased global trade,

o Rise in the complexities of business,

o Large scale, due to Industrial Revolution

• Father of double entry system of accounting – Luca di Bargo Pacioli (Italy, 1494)

• Accounting can be defined as recording, classifying, summarizing, analyzing and interpreting the business transactions.

• The function of accounting is to report to the owners, managers - at regular intervals, about the performance of the entity.

• Accounting facilitates planning & controlling the operations of the business.

• Based on the functions discussed earlier, accounting can be broadly classified into –

– Financial Accounting (i.e. recording financial transactions for the purpose of shareholders, employees, creditors, lenders etc.)

– Management Accounting (it is designed for the operational needs of the business, to provide information relating to various aspects as business for managerial decision making, controlling etc.

Management Accounting

• Simply “Accounting for the Management”

• Providing accurate and timely information for managerial decision making (POSDCORB)

• Use of professional knowledge, updated data and appropriate techniques

• Intense analysis and interpretation of data

• Facilitates day-to-day management as well as future planning and organizing.

Mgt. Accounting Principles –

• Compiling data (records, reports, statements etc.)

• Management by Exception – top management should be involved only in case of exceptional matters.

• Control at Source – costs be controlled at its source

• Integration – integration of mgt. information

• Efficient utilization of resources

• Forward looking approach

• Measuring returns on investment

Techniques of Mgt. Accounting

✓ Cost sheets analysis

✓ Material costs

✓ Overheads costs...