Q. 3. What is the scope of management accounting? What are the main differences between management, financial and cost accounting ?

Answer

The scope, tools and techniques of management accounting are as under:

1. General Accounting. The general accounting records, external transactions covering cash receipts and payments, liabilities and setting up of sales and receivables. It also covers preparation of regular financial statements which are prepared from various account balances.

2. Cost Accounting. It consists of the application of double entry technique of internal transactions which means the application of costs to jobs, operations, processes and products. It helps in sharpening the internal aspects of general accounting.

3. Budgeting and Forecasting. This envisages the framing of budgets in cooperation operating and other departments preferably using standard measures for amounts included in the budgets.

4. Cost Control Procedures. These provide for internal reports which will compare actual and desired performance. It also helps in converting a budget into an operating plan.

5. Cost and Statistics. It is concerned with the provision of statistical and analytical services to the various departments of the organization.

6. Taxation. This requires the computation of income in accordance with the income tax laws and regulations, filing of returns and making tax payments on or before a specific date.

7. Methods and Procedures. These deal with organization reducing the cost and improving the efficiency of accounting as also of office operations, including the preparation and issuance of accounting and other manuals, where these will prove useful.

Difference between Financial Accounting and Management Accounting

Financial Accounting Management Accounting
Object It supplies the Financial position of the organization to the shareholders and creditors. The main object of management accounting is to provide information for internal use by management in day-to-day operations and decision making.
Coverage It provides broad-based information about the whole
organization in the form of Final Accounts.
It covers a narrow area of a department, product activity etc.
Computation  It is always compulsory to prepare Profit and Loss Account and Balance Sheet after each financial year. It is not compulsory Only it can be used when need so arise.
Nature Financial Accounting is concerned almost exclusively with historical records of past performance Management accounting is concerned with future plans and policies.
Accuracy Financial Accounts are more reliable as these are based on actual figures. management accounting deals with approximation or estimation.
Quickness The financial accounting results are not quick It supplies information very soon.
Characteristics It places great stress on such qualities which commands universal confidence such as validity and absolute. It emphasizes those characteristics which increase the value of information in a variety of uses such as flexibility and comparative data which suggest alternate courses of action to the management for decision making.
Historical Financial accounts are the results of past events, only past expenses are recorded. It is concerned more future thus all information is in the form of estimates and Budgets for the future.
Data It is confined to monetary information. It includes monetary and non-monetary such as quantity or material, weights and total working force in the organization.
Presentation These accounts are presented in a specific form either prescribed by law or by convention. Here no such form is prescribed, the
information can be prescribed in any
way suitable to the management needs.
Statutory It is definitely compulsory after a year as required by income tax laws. It is optional, management may or may not.
Publication Its publication in two leading Newspapers. It needs no publication.
Audit It is always audited as these are the details of past events, hence for accuracy, these are subject to audit. Here information is always for
future thus no need for auditing. As
audit begins when accounting ends.

Difference between cost accounting and management accounting

The following are the main points of difference.

 

Cost Accounting Management Accounting
Object To know per unit cost of output. Here the object is to get information for planning.
Scope These are primarily cover cost allocation Its scope is wider. It covers financial accounting and tax accounting.
Data used Here quantitative figures are used. Here both: quantitative and qualitative costs are used.
Development Its development is since Industrial Development. It has developed only the last thirty years.
Principles followed Here the emphasis is on cost control by applying certain procedures and
principles.
Here no set principle is applied.
Coverage It is only related to cost allocation of various products. It is concerned with collection analysis and interpretation of various information needed by the management.

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