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Title: Cost Accounting
Description: cost accounting lectures BBA 2 sem

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Module V
Management accounting-meaning,Defintion,Scope, objectives-magement accounting as distinct from cost
accounting and financial accounting-Budgetary control-classification of budgets

ACCOUNTING FOR MANAGEMENT- INTRODUCTIOON
Management accounting can be viewed as Management-oriented Accounting
...
It is developed mainly
to help the management in the discharge of its functions and for taking various decisions
...


According to it, "Management accounting is the presentation of accounting information in such a way as to assist

the management in creation of policy and the day to day operation of an undertaking"
According to the Institute of Chartered Accountants of England and Wales "any form of accounting which enables

a business to be conducted more efficiently can be regarded as Management Accounting
FUNCTIONS OF MANAGEMENT ACCOUNTING
The basic function of management accounting is to assist the management in pertforming its functions effectively
...
Management accounting
helps in the performance of each of these functions in the following ways:
() Provides data: Management accounting serves asa vital source of data for management planning
...


Modifies data: The accounting data required for managerial decisions is properly compiled and clasified
...


i ) Analyses and interprets data: The accounting data is analyzed meaningfully for effective planning and
decision-making
...
Ratios are calculated and likely
trends are projected
...
Initially, it means identifying the
management plans upward, downward and outward through
it
all parties informed about
feasibility and consistency of the various segments of the plan
...

(v) Facilitates control: Management accounting helps in translating given objectives and strategy into specified

goals

for attainment

manner
...

(vi) Uses also

qualitative information: Management accounting does

not

restrict itself

to

an

financial data for

such information which may not be capable of being
measured in monetary terms
...

SCOPE OF MANAGEMENT ACcOUNTING

of
Management accounting is concerned with presentation accounting

management
...

However, the

following

areas can

rightly

information in the most useful way for the

be identified

as

falling

within the ambit of management accounting:

33| Page

) Financial Accounting: Management accounting is mainly concemed with the rearrangement of the

information provided by financial accounting
...


(di) Cost Accounting: Standard costing, marginal costing, opportunity cost analysis, differential costing and other
cost techniques play a useful role in operation and control of the business undertaking
...


v) Budgetary Control: This includes framing of budgets, comparison of actual performance with the budgeted
performance, computation of variances, finding of their causes, etc
...


(vi)Statistical Methods: Graphs, charts, pictorial presentation, index numbers and other statistical methods make
the information

more

impressive and intelligible
...

(vii) Taxation: This includes computation of income in accordance with the tax laws, filing of returns and making
tax payments
...


xi)Management Information System [MISJ: Management Accounting serves as a centre for collection and
dissemination of information
...

MANAGEMENT ACCOUNTING AND FINANCIAL ACCOUNTING
Financial accounting and management accounting are closely interrelated since management accounting is to a
large extent rearrangement of the data provided by financial accounting
...
In spite of such a close relationship between the two, there are certain

fundamental
Differences
...
Information is
supplied periodically and is usually of such type in which management is not much interested
...
Thus, financial accounting is primarily an external reporting process while management accounting
is primarily an internal reporting process
...
The financial
statements like income statement and balance sheet report on overall performance or statues of the business
...
, of each of them
...
It is a post-mortem
analysis of past activity and, therefore, out the date for management action
...


34751

(iv) Monetary measurement: In financial accounting
only such economic events find place, which can be
described in money
...


These

viz
...


(v) Periodicity of reporting: The period of reporting is much longer in financial accounting as compared to
management accounting
...

Management requires information at frequent intervals and, therefore, financial accounting fails to cater to the
needs of the

and

management
...

(vi) Precision: There is less emphasis on precision in case of management accounting as compared to financial
at

accounting since the information is meant for internal consumption
...
This is

because management accounting is fundamentally based on judgment rather than on measurement
...
However, a business is free to install or not to install system

ofmanagement accounting
...
It embraces the accounting procedures relating to recording
of all income and expenditure and the preparation of periodical statements and reports with the object of
ascertaining and controlling costs
...
On the other hand, management accounting involves collecting, analyzing,
interpreting and presenting all accounting information, which is useful to the management
...
Thus, management accounting draws heavily on cost data and other informationderived from cost

accounting
Management accounting has a wider scope as compared to cost accounting
...

Management accounting is an all inclusive accounting information system, which covers financial accounting, cost
accounting, and all aspects of financial management
...
It
involves a continuous process of reporting cost, financial and other relevant data in an analytical and informative
way to management
...
In the absence of a suitable system of cost accounting, management accountant will
not be in a position to have detailed cost information and his function is bound to lose significance
...

OBJECTIVES OF MANAGEMENT ACCOUNTING
The other main objectives are:
1
...
It involves

forecasting on the basis of available information
...
Help in the interpretation process: The main object is to present financial information
...

35| P age

3
...
Controlling: The actual results are compared with pre determined objectives
...


5
...
It presents the different alternative
plans before the management in a comparative manner
...
Motivating: Delegation increases the job satisfaction of employees and encourages

m to look forward
...

7
...
All these

aspects are helpful in setting up effective and efficient organization
...
Coordinating operations: It provides tools which are helpful in coordinating the activities of different sections
...

It concerned with historical

records
...


MANAGEMENT ACCOUNTING
Its assist the internal

management
...

Itdeals only a limited coverage
...


parties
...


Theperiod is longer

Transactions are very accurate

Recognizes whole business

Coverage

Covers entire range of business in

Publication and audit

monetary
1items
...

Itsprepared whenitsrequired
...


Results of the divisions
...


It
...


publie

LAccounting principles

|It has principles and conventions

Nosuch principles
...
These limitations are as follows:
1
...
The strength and weakness of the management accounting, therefore, depends upon
the strength and weakness of these basic records
...

2
...
The conclusions draws by the management accountant are not executed automatically
...
In other words, he must be an efficient salesman in selling his ideas
...
Management accounting is only a tool: Management accounting cannot replace the management
...
The decision regarding implementing his advice is
to be taken by the management
...


36| P age

4
...
It considers both
monetary as well as non-monetary factors
...


5
...
It can, therefore, be adopted only by big concerns
6
...
It

calls for a rearrangement of the personnel and their activities, which is generally not like by the people involved
...
Evolutionary stage: Management accounting is still in its initial stage
...
fluidity of concepts, raw techniques and imperfect analytical tools
...

Important tools and techniques used in management accounting

creates

1
...
This objective is achieved by making

proper or sound financial planning
...

2
...
These statements are analyzed for
different period
...
This

analysis isdone through comparative financial statements, common size statements and ratio analysis

...
These

cost data are compared with predetermined one
...

4
...
Moreover, this analysis is very useful to
know whether the fund is properly used or not in a year when compared to the previous year
...

5
...
Besides, the reasons for
cash balance and changes between two periods are also find out
...


6
...
It provides a yard stick for measuring actual performance
...

7
...

8
...


is

Under Budgetarycontrol techniques, future financial needs are estimated and arranged according to an orderly
basis
...
Business operations are directed in a
desired direction
...
Revaluation Accounting

The fixed assets are revalued as per the revaluation accounting method so that the capital is properly represented

with
the assets value, It helps to find out the fair return on capital employed
...
Decision-making Accounting

37 1 P age

A business problem can be solved by choosing any one of the best and most profitable alternative
...
Thus, accounting information are used to solve the business problem
which are arising out of increasing complexity of nature of business
...
Management Information System
The free flow communication within the organization is essential for effective functioning of business
...

12
...
Methods of least square,

regression and quality control etc
...

13
...
This is used for comparing with predetermined costs to
evaluate performance
...
Ratio Analysis
It is used to management in the discharge of its basic functions of forecasting
...
It paves the way for effective control of business operations by undertaking an
appraisal of both the physical and monetary targets
...
Itsimplymeansafinancial plan expressedintermsofmoney
...
"bougete",which means aleatherbag intowhich funds are appropriatedtomeet
the anticipated expenses
...
for adefined period of time,

which mayinclude plannedrevenues,expenses,assets,liabilitiesandcashflows

Budgeting and Budgetarv control:
Budgeting simply

means

preparing budgets
...
Being a plan of action, a budget guides every manager in the decision making process
...
The official terminology of CIMA defines the term "budgetary
control, as " the establishment of budgets relating to the responsibilities of executives to the requirement of a
to secure by individual action the
policy, and the continuous comparison of actual with budgetary result, either
are embodied in a budget and the
objectives of that policy or to provide a basis for its revision
...
As such budgetary control starts

with budgeting and ends with control
...
To aid the planning of annual operations
2
...
To communicate plans to the various responsibility centre managers

4
...

5
...
To eliminates the wastes of all kinds

38| Page

7
...
To evaluate the performance o

Steps involved in Budgetarv Control:
The following steps may be considered necessary for a comprehensive budgetary control programme:

1
...

3
...


Laying down organizational goals or objectives
Formulating the necessary plans to ensure that the desired objectives are achieved
...


5
...
Continuous comparison of actual with budgeted results
7
...
Focusing attention on significant deviations

9
...
Presentation of information to management, relating the variations to individual responsibility
...
Taking corrective action to prevent recurrence of variations
...
Provide a basis for revision of budgets
...
Support by top management: The wholehearted support of all managerial persons is very necessary for the
success of a budgetary control system
...
Formal organization: The existence of a formal and sound organizational structure is of an absolute necessity
for an effective system of budgetary control
3
...
Clear cut objectives and reasonably attainable goals:- If goals are too high to be attained, the purpose of
budgeting is defeated
...

5
...

6
...
The

work of scrutinizing the budgets as well as approving of the same should be the work of this committee
...
Comprehensive budgeting: Budgeting should not be partial, it should cover all the functions
...
Adequate accounting system: There should be an adequate accounting system for the successful budgetary
control system, because those who are involved in the preparation of estimates depend heavily on the accounting

department
...
Periodic reporting:- There should be a prompt and timely communication and reporting system for the

effective implementation of a budgetary control system
...


Budget period: This may be defined as the period for which a budget is prepared and employed
...
There is no general rule governing
the selection of the budget period
...
Classification according to time factor
2
...
Classification according to function
...
Classification according to time factor: On this basis, budgets can be of three types:
1
...
Short term budgets-Usually for a period of one to two years
3
...
Classification according to flexibility: It includes
1
...
Fixed budgets
Flexible budgets: It is a dynamic budget
...
It is
prepared after making an intelligent classification of all expenses between fixed, semi variable and variable
because the usefulness of such a budget depends up on the accuracy with which the expenses can be classified
...
Identifying the relevant range of activity
2
...
Determine variable cost
4
...
Determine semi variable cost

6
...
It does not
change with the change in the level of activity
...
It is a single
budget with no analysis of cost
...
Classification according to funetion: It includes:

1
...
Master budgets

Functional budgets are those which are prepared by heads of functional department s for their respective
departments and are subsidiary to the master budget
...
Operating budgets are those budgets which relate to the different activities
or operations of a firm
...
Financial budgets are those which incorporate financial

decisions of an outflow of cash and the overall financial position
...
It summarizes sales, production
...
It is considered as the overall budget of the organization
...
Sales budget: It is forecast of total sales expressed in quantities and money
...

While preparing sales budget we have to consider the past sales data, market conditions, general trade and
business conditions etc

2
...
It is usually expressed
in physical quantity
Title: Cost Accounting
Description: cost accounting lectures BBA 2 sem