Maharaja Surajmal Institute Affiliated to GGSIPU Delhi Course Bachelor of Business Administration Subject Module On Management Accounting BBA 207 B I 207 Semester III Credit 4 Module Contributor s Dr Rajeshwari Malik Dr Parul Deshwal Dr Rajeev Dahiya Dr Alka Mittal Dr Shavita Deshwal Dr Beena Devi Ms Shikha Shokeen Ms Nisha Tokas 1 2 CONTENTS Unit Name Page Number Unit No I Lesson1 Introduction to Management Accounting 4 25 26 60 61 111 112 142 II Lesson 1 Financial statements analysis Lesson 2 Ratio analysis Lesson 3 Funds and cash flow analysis III IV 1 Lesson 1 Budgets and budgetary control 2 Lesson 2 Standard costing and variance analysis Marginal Costing Profit Planning Lesson1 Marginal Costing Absorption costing Lesson2 Direct Costing Lesson 3 Differential Costing Lesson 4 Key Factor Lesson 5 Break even Analysis Lesson 5 Margin of Safety Lesson 6 Cost Volume Profit Relationship Lesson 7 Advantages of Marginal Costing Lesson 8 Limitations Applications of Marginal Costing Text Books Reference Books Maheshwari S N Principles of Management Accounting Sultan Chand Sons Khan Jain Management Accounting Tata McGraw Hill Publishing House Maheshwari S N Advanced Cost Accounting and Cost Systems Shree Mahavir Book Depot Horngren Charles Introduction to Management Accounting 3 4 UNIT I INTRODUCTION TO MANAGEMENT ACCOUNTING CONTENT UNIT I S NO 1 TOPIC Introduction to Management Accounting 1 1 1 2 1 3 What is Accounting Branches of Accounting Management Accounting Definition 1 3 1 Objectives of Management Accounting 1 3 2 Functions of Management Accounting 1 3 3 Scope of Management Accounting 1 4 1 5 1 6 1 7 1 8 Various Techniques used to discharge the function of Management Accounting Financial Accounting Vs Cost Accounting Financial Accounting Vs Management Accounting Cost Accounting Vs Management Accounting Importance of Management Accounting 1 9 Limitation of Management Accounting 1 10 1 Management Accountant Definition 1 10 2 Role of Management Accountant 5 WHAT IS ACCOUNTING Accounting is the systematic and comprehensive recording of financial transactions pertaining to a business and it also refers to the process of summarizing analyzing and reporting these transactions to oversight agencies and tax collection entities Accounting is one of the key functions for almost any business it may be handled by a bookkeeper and accountant at small firms or by sizable finance departments with dozens of employees at large companies THREE BRANCHES OF ACCOUNTING Before discussing what are the three branches of Accounting let me tell you the definition According to Wikipedia Accounting usually generates financial statements which reveal in money terms the economic resources under the control of management selecting information which is appropriate and representing it faithfully Today it is referred to as the language of business since it is the vehicle for reporting financial information pertaining to a business entity to numerous different categories of people According to Wikipedia branches of accounting are Financial Management Cost Tax Forensic and Public Sector Following are the Main Three Branches of Accounting 1 Financial accounting It is intended for outsiders persons apart from owners and managers There are several uses of Financial accountancy It is worried about the recording of business transactions and the periodic preparation of income statement 6 balance sheet and cash flow statement from these types of records In this way it is perfect for determining profit or loss made during a given period and financial position by the end of the given period as well as the sources and uses of cash for the year Financial accountancy is controlled by both local and international standards 2 Management accounting It is focused on the interpretation of accounting information to help the management in future planning decision making control etc Management accountancy for that reason serves the information requirements of the insiders e g owners managers and employees Within the division of management accountancy you will find nearly enormous quantities of tools methods techniques and approaches floating around 3 Cost accounting It is a useful tool you utilize to cut back and eliminate costs in a business This has been developed to determine the costs incurred for carrying out different business activities and to assist the management to exercise strict cost control Considering that managers are making decisions just for their own firm there s no need for the information to be comparable to similar information from other businesses Rather information should be suitable for a specific environment MANAGEMENT ACCOUNTING Management Accounting is the process of analysis interpretation and presentation of accounting information collected with the help of financial accounting and cost accounting in order to assist management in the process of decision making creation of policy and day to day operation of an organization Thus it is clear from the above that the management accounting is based on financial accounting and cost accounting OBJECTIVES 1 Measuring performance Management accounting measures two types of performance First is employee performance and the second is efficiency measurement The actual performance is measured with the standardized performance and a report of deviation from the standard performance is reported to the management for the effective decision making and also to indicate the effectiveness of the methods in use Both types of performance management are used to make corrective actions in order to improve performance 7 2 Assess Risk The aim of management accounting is to assess risk in order to maximize risk 3 Allocation of Resources is an important objective of Management Accounting 4 Presentation of various financial statements to the Management FUNCTIONS OF MANAGEMENT ACCOUNTING The management process implies the four basic functions of 1 Planning 2 Organising 3 Controlling and 4 Decision making Management accounting plays a vital role in these managerial functions performed by managers Planning is formulating short term and long term plans and actions to achieve a particular end A budget is the financial planning showing how resources are to be acquired and used over a 1 PLANNING specified time interval Management accounting is closely interwoven in planning both because it provides information for decision making and because the entire budgeting process is developed around
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