Scope of Management Accounting

Written by True Tamplin, BSc, CEPF®

Updated on July 22, 2022

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

1. General Accounting: General accounting records external transactions covering cash receipts and payments, liabilities, and the setting up of sales and receivables. It also covers the preparation of regular financial statements using account balances.

2. Cost Accounting: Involves the application of the double-entry technique of internal transactions, which means the application of costs to jobs, operations, processes, and products. It helps sharpen the internal aspects of general accounting.

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

4. Cost Control Procedures: These provide internal reports that compare actual and desired performance. Cost control procedures also help to convert a budget into an operating plan.

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

6. Taxation: This requires the calculation of income according to income tax laws and regulations, the filing of returns, and making tax payments on or before a specific date.

7. Methods and Procedures: These deal with reducing costs and improving the efficiency of accounting and office operations, including the preparation and issuance of accounting and other manuals where they will prove useful.

Difference Between Financial Accounting and Management Accounting

Financial Accounting Management Accounting
Objective To show the financial position of the organization to shareholders and creditors To provide information for internal use by management in day-to-day operations and decision-making
Coverage Provides broad-based information about the whole organization in the form of final accounts Covers a narrow area of a department, product activity, etc.
Mandatory? It is always compulsory to prepare a profit and loss account and balance sheet after each financial year It is not compulsory and is only used when the need arises
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 approximations or estimations
Speed Financial accounting results are not obtained quickly Supplies information quickly
Characteristics Places great stress on qualities that command universal confidence (e.g., validity) Emphasizes the characteristics that increase the value of information in a variety of uses, such as flexibility and comparative data, which suggest different courses of action to the management for decision-making
Historical Financial accounts are the results of past events, where only past expenses are recorded Management accounting is concerned more with the future, and so all information is in the form of estimates and budgets
Data Monetary information Monetary and non-monetary information (e.g., the quantity of materials and the workforce size)
Presentation These accounts are presented in a specific form either prescribed by law or by convention Management accounting information can be presented in any way that the company's management deems suitable
Statutory At year-end, financial accounting must be performed as required by income tax laws Management accounting is optional
Publication Financial accounting data and financial statements are often published in newspapers and other types of media This information is for internal use only and, therefore, is not published
Audit Always audited because financial accounting concerns the details of past events, and so to promote accuracy, the information is subject to audit Information is always used for future purposes, meaning there is no need for auditing

Difference Between Cost Accounting and Management Accounting

Cost Accounting Management Accounting
Objective To determine the per-unit cost of output To obtain information useful in planning
Scope Primarily covers cost allocation Broad scope covering both financial accounting and tax accounting
Data used Quantitative data Both quantitative and qualitative data
Development In practice since the Industrial Revolution In practice for the last 30 years
Principles followed The emphasis is on cost control by applying certain procedures and principles No set principles are applied
Coverage Only covers cost allocation for various products Covers the collection, analysis, and interpretation of the different types of information needed by the management

Scope of Management Accounting FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.