Financial Management

Welcome to this introductory lesson on Management Accounting. In this session, we begin exploring how accounting supports managers in making smarter business decisions. Many people think accounting is only about bookkeeping or preparing financial statements, but management accounting goes much further. It focuses on using financial information internally to guide planning, control operations, and improve performance. Imagine running a company without knowing which products are profitable or which departments are overspending. That would be risky and inefficient. Management accounting provides the insights needed to avoid such problems. It transforms raw financial data into meaningful reports that managers can act on. Throughout this topic, we’ll discover how accounting becomes a practical management tool rather than just a record of past events. By the end, you’ll see that management accounting plays a key role in helping organizations operate efficiently, compete effectively, and achieve their goals.

Agenda 01 First, we will understand what management accounting means, why organizations need it, and how it supports daily management activities like planning, budgeting, and performance monitoring. Agenda 02 Next, we will compare management accounting with financial accounting and explore the specific roles and responsibilities of a management accountant within an organization. Overview This lesson explains how accounting information is not just for reporting profits but also for guiding managers when making operational and strategic decisions.

Learning Objective. Objective. Define management accounting and its scope..

Nature and Scope of Management Accounting. Accounting: Involves the collection, recording, classification of financial data for the benefit of management Classification of Accounting: Financial Accounting Cost Accounting Management Accounting.

Financial Accounting. Definition: Art and Science of recording classifying business transactions and preparing summaries of the same for determining year end profit and loss(performance) and the financial position of the concern. Object: To find out the profitability and to provide information about the financial position of the concern.

Functions of Financial Accounting. Recording of information Classification of data Making summaries Dealing with financial transactions Interpreting financial information Communicating results Making information more reliable.

Cost Accounting. Cost Accounting: Process of Accounting for cost from the point at which expenditure is incurred or committed to the establishment of its ultimate relationship with cost centres and cost units. Objective: Analysis and Ascertainment of costs Presentation of costs for cost reduction and cost control Planning and decision making.

Importance and Advantages of Cost Accounting. Aid to Management Provides reliable cost data Helps in fixing prices Provides information on which estimates and tenders are based Helps in channelising production on right lines Guides future production policies and helps in planning.

Management Accounting. Meaning: It is the study of the managerial aspect of accounting Definitions: Accounting information for decision making Accounting methods, systems and techniques which assist management in maximising profits and minimise losses.

Characteristics/ Nature of Management Accounting.

Scope of Management Accounting. Financial Accounting-historical data Cost Accounting-techniques for cost management Budgeting and Forecasting-plans, policies, and goals for the future Inventory control- correct determination of income Reporting to Management-keep management information.

Functions of Management Accounting. Planning and forecasting Modification of data Financial analysis and interpretation Facilitates managerial control Communication Use of qualitative information Coordinating Helpful in strategic decisions Supplies information to various levels of management.

Tools and Techniques of Management Accounting. Financial Policy and Accounting Analysis of Financial Statement Historical Cost Accounting Budgetary Control Standard Costing Marginal costing Decision Making Revaluation/Replacement Accounting.

Need/ Importance of Management Accounting. Increase efficiency Proper planning Measurement of performance Maximising profitability Improves service to customers Effective Management Control.

Limitations of Management Accounting. Based on accounting information Lack of knowledge Intuitive decision making Not an alternative to management Top heavy structure Evolutionary stage Personal bias Psychological resistance.

Summary. Management accounting is an essential tool for organizational management, providing timely and relevant information to guide decisions, control processes, and improve efficiency. It enables managers to plan, measure performance, and make strategic choices. Unlike financial accounting, its focus is on internal reporting and forward-looking insights rather than historical reporting, helping organizations respond effectively to challenges and optimize resource utilization..

Books. Management and Cost Accounting by Colin Drury.