Session –I

 According to American Institute of Certified Public

Accountants (AICPA) –
“Accounting is the art of recording, classifying &
summarizing in a significant manner & in terms of
money, transactions & events which are, in part,
at least of financial character & interpreting the
results thereof ”.
 Recording
zing &
reting

Classif
PROCESS
interp
Analy

OF

yi
ACCOUNTING

ng
Summarising
 Users
Users of
of Accounting
Accounting Information
Information

 investors
Financial Accounting  creditors
 regulators
EXTERNAL USERS
 customers
 competitors
 Users
Users of
of Accounting
Accounting Information
Information

• investors
Financial Accounting • creditors
EXTERNAL USERS
• regulators
• customers
• competitors
Management Accounting
INTERNAL USERS  owners
 managers
 employees
 Stakeholder
Government & its agencies
Top Managers, Workers, Unions
Public
Long-term Lenders, Present &
Potential Shareholders
Fund managers & Analysts
Customer
Supplier & Other Creditors
Would be interested due to
Income tax & other tax liabilities
Potential for pay hikes, bonus, and incentives
Ethical and environmental activities
Whether the firm has a long-term future
Profitability & share performance
Ability to take a bigger order, etc
Whether to offer the firm credit and if so, terms
7
 For internal users such as president,
marketing manager and production manager.

 Used for three functions of

managers:
◦ Planning.
◦ Implementation.
◦ Control.
Acc to ICMA London management accounting
is ,
“ the application of professional knowledge
& skill in the preparation of accounting
information in such a manner as to assist
management in formation of policies, & in
the planning & control of the operations of
the undertaking”.
 It helps in future planning.
 It is an integral part of management.
 It uses certain techniques for making the

accounting more useful.

 Analyses cause & effect relationship.
 It is selective in nature.
It includes:
 Financial accounting
 Cost accounting
 Budgeting & forecasting
 Reporting
 Inventory control
 Tax accounting
 Internal audit
 Performance evaluation of management.
 Basis FA MA
Objective Provide information of the Provide information for
final results. decision making.
Legal Mandatory As per Voluntary as per
requirement companies act 1956 & requirements of the
income tax act 1961 management.
Time historic Futuristic
orientation

Report Overall organisation Responsibility centers

entity
 Basis FA MA
Report quarterly & annual Varies with purpose,
frequency monthly or weekly
Access to Outsiders have access. Outsiders do not have
accounts access.
Type of Only monetary Monetary & non
information. information is recorded. monetary information
is recorded.
Interested Whole world is Only internal
parties interested in information. management is
interested.
 It is the method of accounting for cost which
begins with incurrence of costs & ends with control
of cost.

 CIMA, London defines cost accounting as “the

process of accounting from the point at which
expenditure is incurred or committed to the
establishment of its ultimate relationship with cost
centers & cost units. In it widest usage, it embraces
the preparation of statistical data, application of
cost control methods & the ascertainment of
profitability of activities carried out or planned.”
 The amount of expenditure attributable to
specified thing or activity.

 Cost is the value of economic resources used as a

result of producing or doing a thing.

 ICWA defines cost as “ measurement , in

monetary terms, of the amount of resources
used for the purpose of production of
goods or rendering services.
 Expense is that portion of cost that has
been consumed during the accounting
period & contributed to the revenue. It is
also called expired cost. E.g. depreciation
 Loss is that portion of cost that has been

consumed during the accounting period &

has not contributed to the revenue. E.g.
Loss due to fire.
 A cost unit is a unit of product, service or
time in terms of which costs are ascertained
or expressed.
 A cost centre is a location, person or item of

equipment for which costs are ascertained &

used for the purpose of cost control.
 To ascertain cost.
 To control cost.
 To provide information for decision making.
 To determine selling price.
 To ascertain costing profit.
 Basis FA CA
Objective Provide information of the Provide information for
final results. decision making.

Analysis of Reveals results of the Shows profit made on

profit business as a whole. each product, job or
process.
Mandatory As per Voluntary & made as
Legal
requirement companies act 1956 & per requirements of the
income tax act 1961 management.
Based on historical data. Based on present &
Data used future data.
Stocks are valued at cost
Stock
valuation or market price whichever Stocks are valued at
is lower. cost.
 Basis FA CA
Responsibility Does not fix Fixes responsibility
fixation responsibility
Access to Outsiders have access. Outsiders do not have
accounts access.
Type of Only monetary Monetary & non
information. information is recorded. monetary information
is recorded.
Interested Whole world is Only internal
parties interested in information. management is
interested.
Emphasis On reporting On control
 Advantages to management-
◦ Ascertains cost.
◦ controls cost.
◦ Helps in inventory control.
◦ Helps in cost reduction
 Basis CA MA
Purpose Deals with cost Provides information
ascertainment, cost for managerial decision
allocation & cost control. making.
Scope Narrow wider

Techniques Standard costing, All techniques of cost

used budgetary control, CVP accounting & Funds
analysis, inventory flow & cash flow
control. analysis, ratio analysis.
 Basis CA MA
Organisational Used at middle or lower Used at higher levels in
status levels in the organization. the organization.
Data base Information is derived from Information is derived
financial accounting from financial
records. accounting, cost
accounting records &
other sources as well..

Dependency Cost accounting system Management

can be installed without accounting system
management accounting cannot be installed
system. without cost accounting
system.