Page 7 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes was also known as custodial or stewardship accounting. Basically meant for consumption of
owners, creditors, statutory authorities, the reporting was for a concern as a whole.
In olden days, when the concern was small and catering to the local area of operation, the
proprietor who managed the show was aware of all the happenings and could control the
business well without additional information. But as businesses grew bigger, and the area of
operations widened, there came into existence a separate cadre of people called the management.
Since the rewards of management were entirely dependent on performance, they wanted a lot of
information on the concern and outside, which was necessary to be effective. They also wanted
information quickly, which made financial accounting inadequate.

The need for a new type of accounting was felt. This gave birth to cost accounting. The emergence
of cost accounting to large extent satisfi ed the need of management. Cost accounting identifi ed
expenses to the origin (product, department or territory) by classifying them as direct or indirect
expenses and depending upon their variability, categorised them as variable or fi xed expenses.

These helped the cost assembly, planning, fixing of standards and monitoring of variance and
made it an easy job to control cost through responsibility accounting.
Responsibility accounting apart from serving as a control mechanism was also a motivational
tool for achievement and rewards. Since management knew the incidence of expense and its
origin, early steps for correction could be taken promptly. Meaningful reports to suit the
hierarchy were instituted for periodical submission. People lower down the order got all the
information quantitatively; middle management both quantity and value. The higher echelons
got reported on the basis of exceptions on monetary values. Computerization also took place to
process voluminous data and for timely submission of reports. In course of time, cost accounting
assimilated techniques from various other disciplines like operations research, statistics,
economics, behavioural science and techniques of management to aid decision making. The

term cost accounting brings to mind only the function of cost finding and therefore, this large
comprehensive discipline was renamed management accounting or managerial accounting.

Recently, finance has also been brought under this umbrella.
!

Caution The term ‘Management Accounting’ refers to accounting for the management.
Management accounting provides necessary information to assist the management in the
creation of policy and in the day-to-day operations. It enables the management to discharge

all its functions, i.e., planning, organization, staffing, direction and control effi ciently with
the help of accounting information.
Self Assessment

Fill in the blanks:
1. ………………… recorded business transactions on double-entry basis and helped

ascertainment of profit or loss for the given period and valuation of stock of assets and
liabilities on a given date.
2. Financial accounting enabled the concern with the liabilities and safeguard the assets
entrusted and therefore was also known as ………………… accounting.

3. ………………… identifi ed expenses to the origin by classifying them as direct or indirect
expenses and depending upon their variability, categorised them as variable or fi xed
expenses.

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