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
The scope of management accounting is to provide information that can be used by the management in day-to-day operations and decision-making. The periodicity or frequency with which this data is collected depends mainly on the requirements of the organization.
The most common examples are cost ledger, cashbook, sales ledger, purchases book, and production cost analysis.
The tools of management accounting are as follows:- general accounting- cost accounting- budgeting and forecasting- cost control procedures- cost and statistics- taxation- methods and procedures
The differences between financial and management accounting are:- financial accounting is based on historical information while management accounting is based on future projections- financial accounts are audited by independent bodies while management accounts are not audited- The scope of financial accounting is limited to the public sector, whereas the scope of management accounting covers both private and public sectors
The differences between cost accounting and management accounting are:- The objective of cost accounting is to determine the per-unit cost of output while the objective of management accounting is to obtain information useful in planning- The scope of cost accounting covers only cost allocation while the scope of management accounting is broader and includes both financial accounting and tax accounting- Information used for both types of accounts are monetary items but the nature of information differs since financial accounting is quantitative while management accounting is qualitative
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.