Management Accounting

The traditional accounting, known as single entry system of bookkeeping, was in vogue right from time immemorial. The beginning of modern accounting took the form of Financial Accounting based on the double-entry system.
The scope of accounting was limited to keeping records of business transactions and to prepare Profit & Loss Account from the view of financial results and Balance Sheet from the view of financial position.

Management Accounting is the term used to describe the accounting methods, systems & techniques which, coupled with special knowledge & ability, assist management in its task of maximizing profits or minimizing losses.                                                                                                  - J. Batty

Nature of Management Accounting: 

1. Both as Science & arts: In Management accounting data are collected systematically & they are analysed with the help of various formulae & techniques, on this basis it is science. On the other hand, the subjective judgement of management & various needs of the organisation is also taken into account while taking decisions & on this basis, it is an art. On the whole, management accounting is both - science as well as an art.
2. Accounting Service: Management accounting is a function of accounting service towards management. Under this service, necessary information(financial as well as non-financial) is provided to various levels of management.
3. More concerned with the future: No doubt, analysis & interpretation is done based on historical data, but the important objective of management accounting is to determine the policies for future, to forecast & to help management in its task of planning & budgeting.
4. Integrated System: It is an integrated system in which techniques related to various subjects are used in the process of data collection, analysis, and decision making.
5. Cause & Effect Analysis: Management accounting lays emphasis on the analysis of 'cause' & 'effect' of different variables. It examines the financial effects of various managerial decisions. 
6. Supplies information, not decisions: It provides the requisite information with which the management takes the decisions. It can also be defined as the map, it can guide you bt can't take you where you should go.

Scope of Management Accounting:

1. Financial Accounting: Financial accounting pertains to the recording of all the transactions in the books of accounting of the business concerns. These statements so prepared provides the base for management accounting.
2. Cost Accounting: Various aspects of cost accounting, such as standard costing, marginal costing, budgetary control, differential costing, etc. are very helpful to the management for planning various business activities.
3. Financial Management: It is concerned with the planning & controlling of financial resources of the firm so that the funds at disposal may be utilised effectively.
4. Budgeting & Forecasting: Budgeting means expressing the plans, policies & goals of an enterprise in quantitative terms for a definite period. After the completion of period actual performance is compared with budgeted figures & efficiency is measured. Forecasting is the prediction based on past trends, current information & future possibilities.
5. Interpretation of Data: Interpretation is as important as a compilation of financial statements. Management accounting interprets various financial statements & presents them in simple language to the management.
6. Cost & Statistics: Various statistical methods are used for cost controlling in management accounting. Moreover, supplementary statistics & analytical services are also provided to various departments of business concerns.
7. Tax Accounting: Nowadays, management accounting has also become a part of management accounting. It involves the preparation of various returns relating to income, production & sales, calculation of tax liability & timely payment of taxes.
8. Internal Audit: Internal audit is required to assess the performance of various departments & to make the system of internal control effective.

This will explain what management accounting is & it's nature and scope. Hope you like it!!
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