Scope of Management Accounting

Scope of Management Accounting

The main purpose of management accounting is to utilize the accounting information in solving the business problems and taking scientific decisions. Moreover, the scope of management accounting is very wide. Therefore, it is very difficult of pinpoint the exact scope of management accounting. However, the scope of management accounting are listed below.

Scope of Management Accounting

Scope of Management Accounting

1. Financial Accounting

Financial accounting is relating to the recording of business transactions immediately soon after the transaction taken place or afterwards incurring the expenses. The business transaction may be relating to income, expenses, inventory movement, assets, liabilities, cash receipts and payments and so on.

The process of financial accounting includes the preparation of financial statements regularly at the end of each accounting year for knowing operating results for a definite period. The term financial statements includes profit and loss account and balance sheet.

Management is unable to exercise the coordination and control out of the information supplied by financial accounting system. But, the financial accounting system information is the basis of future business planning and financial forecasting.

2. Cost Accounting

Cost accounting is concerned with the ascertainment of various elements of costs for different business operation and activities. These cost data are used in the management accounting system for further analysis so as to solve business problems and take quality decision.

3. Budgeting and Forecasting

Management accounting includes budgetary control and forecasting techniques also. Under budgetary control system, the budgets are prepared on functional basis and measure the actual performance, find the difference between the actual and standard for taking corrective actions In this way, budgeting assists the management for identifying responsibility and ensuring coordination.

4. Revaluation Accounting

This type of accounting system is ensuring that the capital is maintained intact in real terms. By keeping this fact in mind, correct amount of profit is calculated and used for managerial decision making.

5. Cost Control Procedures

Cost control procedures are an integral part of management accounting process. In includes inventory control, cost control, time control, budgetary control, standard costing etc.

6. Statistical Methods

In order to analyze the financial accounting data, tables, diagrams and graphs are used in the management accounting system. These are nothing but statistical methods.

7. Inventory Control

Inventory control refers to exercising control over the utilization of raw materials, processing of work in progress and disposal of finished goods for a specific period.

8. Reporting

Reporting is divided into two types. They are interim reporting and external reporting. Interim reporting is supplying information to the top management. External reporting is supplying information to outsiders i.e. shareholders, banks and financial institutions.

Interim reporting deals with the submission of financial results by means of weekly, fortnightly, monthly, quarterly or half yearly accounts or statements to the top management.

9. Taxation

It includes the computation of corporate income tax in accordance with the tax laws, filing of returns and making tax payments.

10. Methods and Procedures Design and Installation

Management accounting is relating to the most efficient and economic system of accounting suitable to any size and type of undertaking. Moreover, it employ best use of mechanical and electronic devices.

11. Internal Audit

Internal audit is conducted by the business organization with the help of paid employee who has thorough accounting knowledge. All the relevant records are maintained under the management accounting system so that the internal audit is conducted in an effective manner.

12. Office Services

It includes maintenance of proper data processing and other office management services.

13. Financial Management

Every owner of the business concern expects fair rate of return on investments. It is possible through the effective utilization of the finance. Hence, it is termed as financial management and considered as separate discipline. The tools in financial management are developed through management accounting system.

14. Interpretation

Management accounting is relating to the interpretation of financial data to management and advising them on decision-making.

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