Page 168 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Unit 9: Introduction to Management Accounting

9.3 Limitations of Management Accounting Notes

The following are the key limitations of management accounting:

1. It is based on the past or yesteryear information of cost accounting and fi nancial accounting

which influences the effectiveness of the entire management accounting.
2. Though broader in scope, which paves way for inaccuracy of results.
3. It is nascent in stage, which leads to a lot of confusion among the decision makers while
interpreting the information.

4. The installation of a system leads to opposition among the working people due to different
rules, regulations, procedures and so on.

5. Management accounting is considered as a tool of management in making decisions; made
only by the management but not by the management accountant.

Self Assessment

Fill in the blanks:

3. ........................ is a traditional method of accounting that supplies historical information
about the firm during the past.

4. ........................ is an inevitable tool complementing the management accounting in deriving
rational decisions through decision tree analysis and so on.
5. Management accounting is considered as a tool of management in making decisions; made
only by the ........................ .

6. The two major dominant forces of management accounting are financial accounting and
........................ .
7. ........................ is another component of management accounting which plays a pivotal role
in presentation of information through charts, diagrams etc. by the various departments.
9.4 Relationship of Financial, Cost and Management Accounting

The ICMA, London, defines management accounting as “the application of professional

knowledge and skill in the preparation and presentation of accounting information in such a way
as to assist management in the formulation of various policies and in the planning and control of
the operation of the undertaking”.

The American Accounting Association, committee on management accounting, defi nes
management accounting as “the application of appropriate techniques and concepts in processing
the historical and projected economic data of an entity to assist management in establishing a
plan for reasonable economic objectives and in the making of rational decisions with a view
towards achieving these objectives”.
Though some number of differences can be identified between cost accounting and management

accounting, the line of difference is very thin. Because, cost accounting, at present, comprises of
some of the advanced techniques and systems of costing such as budgetary control, marginal
costing, standard costing, etc. and therefore, it tends to conform to management accounting.
Consequently, not much difference can be found between the two. The main differences between
cost accounting and management accounting are given as under:

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