Scope of Management Accounting

Scope of Management Accounting

The scope or field of management accounting is very wide and broad-based and it includes a variety of aspects of business operations. It is the procedure of identity, calculate, evaluate, and communicating information to managers for the detection of an organization’s goals. The main aim of management accounting is to help management in its functions of planning, directing, controlling and areas of specialization included within the admit of management accounting.

The scope of management accounting can be studied as follows:

Scope of Management Accounting

Fig: The scope or field of management accounting 

Financial accounting provides chronological information but is especially functional for future preparation and financial forecasting. It forms the basis for analysis and interpretation for furnishing meaningful data to the management. Management accounting contains only tools and techniques and its get the data for interpretation and analysis mainly firm financial accounting. Designing an appropriate financial accounting structure is a necessity for obtaining full organize and coordination of operations of the business. The control aspect is based on financial data and performance evaluation, on recorded facts and figures.

The cost accounting system provides essential tools such as standard costing, budgetary control, inventory control, marginal costing, etc., for carrying out such functions proficiently. It is the process and techniques of ascertaining cost. It uses financial data for finding out the cost of the various job, Product or processes. Planning, decision making, and control are the basic managerial functions. Business executives depend heavily on accounting information in general and on cost information in particular because any activity of an organization can be described by its cost. The tools include standard costing, inventory management, variable costing etc.

Budgeting means expressing the plans, policies, and goals of the firm for a definite period in the future. Forecasting, on the other hand, is a prediction of what will happen as a result of a given set of circumstances. Forecasting is a judgment whereas the budgeting is an organizational object. These are useful for management accounting in planning.

  • Taxation

It is an essential division of management accounting and includes preparation of income statement, the purpose of assessable income and filing up the return of income etc.

  • 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. For controlling inventory, management should determine a different level of stock. The inventory control technique will be helpful for making managerial decisions.

  • Statistical Method

Statistical tools not only make the information more impressive, comprehensive and intelligible but also are highly useful for planning and forecasting. Other tools such as time series, regression analysis, sampling techniques etc., are highly useful for planning and forecasting.

  • Interpretation of Data

Analysis and interpretation of financial statements are an important part of management accounting. After analyzing the financial statements, the interpretation is made and the reports drawn from this analysis are presented to the management. Interpreting the accounting data to the authorities in the management is the principal task of management accounting.

  • Office Services:

This includes the preservation of appropriate information processing and other organization management services, communication and best use of the latest mechanical devices. This function includes data processing, reporting on the best use of mechanical and electronic devices, communication, etc.

  • Reporting to Management

The interpreted information must be communicated to those who are interested in it. The report may cover Profit and Loss Account, Cash Flow and Funds Flow statements etc. The management accountant send interim reports may be monthly, quarterly, half-yearly, these reports are cover profits or order in hand, etc these reports are helpful in giving a constant review of the working of the business.

Internal Audit and Tax Accounting

This includes computation of income tax as per tax laws and regulations, the filing of returns and making tax payments. In recent times, it also includes tax planning.

Internal audit system is necessary to judge the performance of every department. Management is able to know deviations in performance through an internal audit. It also helps management in fixing responsibility of different individuals.