Management Accounting Notes
(Chapter 2 to Chapter 5)
1. What are the tools of Management Accounting?
Tools of Management Accounting
1. Tools of Financial Statement Analysis 2. Costing Techniques
a. Comparative Statements a. Standard Costing
b. Common-size Statements b. Marginal Costing
c. Trend Analysis c. Differential Costing
d. Ratio Analysis d. Direct Costing
e. Funds flow analysis e. Budgetary Control
f. Cash flow analysis f. Control Accounting
2. What are Comparative Statements?
a. Comparative statements are the statements showing the figures at different periods of time
and the changes in the figures over the periods in absolute terms and in percentages.
b. Comparative statements are prepared for two years.
c. The two comparative statements are
(i) Comparative Balance Sheet
(ii) Comparative Income Statement
d. Comparative balance sheet shows the assets and liabilities at different periods of time along
with the increase or decrease in each item in absolute terms and in percentages.
e. Comparative Income Statement shows the expenses, revenues and the profit or loss at
different periods of time along with the increase or decrease in each item in absolute terms
and in percentages.
3. What are Common-Size Statements?
a. Common-Size Statements show the different figures as a percentage to a common base.
b. The total assets or liabilities are taken as 100 and all the individual items are expressed as a
percentage to the total.
c. The Common-Size Statements prepared are
(i) Common-Size Balance Sheet
(ii) Common-Size Income Statement
d. Common-Size Statements enable vertical analysis of items.
4. What do you mean by Trend Analysis?
a. Trend refers to the tendency of movement.
b. Trend analysis refers to the study of movement of figures over a period.
c. The trend may be regular or irregular.
d. If it is regular, it may show an increasing tendency or decreasing tendency.
e. For financial statement analysis, trend percentages can be calculated.
f. One year, generally the first year is taken a s the base year.
g. The figures for the base year are taken as 100
h. The figures for the other years are expressed as a percentage to the base year and the
trend is analysed.
i. Trend analysis is useful in Forecasting and Budgeting.
, 5. What is Ratio Analysis?
a. Ratio Analysis is concerned with computation of different ratios for the purpose of analysis.
b. Ratios are understood for two interconnected figures.
c. Ratios simplify the data for comparison and analysis.
6. What is Funds Flow Analysis?
a. Funds flow analysis is concerned with preparation of funds flow statement to show the
movement of funds.
b. It shows the different sources and applications of fund and the net effect.
c. It gives the reasons for inflow and outflow of funds.
d. Working Capital here refers to the excess of current assets over current liabilities.
7. What is Cash Flow Analysis?
a. Cash flow analysis is concerned with preparation of cash flow statement that shows the
movement of cash.
b. Cash flow statement states the reasons for change in cash position between two dates.
c. It states the various sources and applications of cash and cash equivalents.
8. What is Standard Costing?
a. It is the technique of cost control that involves fixing standards, measuring actuals and
analysis of variances.
b. It requires proper accounting of the standards and actuals.
c. Analysis of variances helps in identifying the points of efficiency or inefficiency and the
departments or units requiring proper attention.
d. It helps in cost reduction and cost control.
9. What is Marginal Costing?
a. It is the technique that shows the ascertainment of marginal cost and analyses profit at
different levels by differentiating between fixed costs and variable costs.
b. Variable costs are considered as product costs and fixed costs are written off against the
profit during the period.
10. What is Differential Costing?
a. It is the technique that shows the difference between costs and the difference between
revenues are compared for the purpose of analysis and decision making.
b. When the income or revenue increases the difference is called incremental revenue and when
the revenue decreases the difference is called decremental revenue.
11. What is Direct Costing?
a. It is the technique that considers only direct costs while determining the cost of a product.
b. It also includes the fixed costs that can be identified with a product, department etc.
12. What is Budgetary Control?
a. Budgetary Control is the process that includes preparation of budget, measurement of actual,
comparison of actual with budgeted figures and taking corrective measures.
b. Budgetary Control fixes responsibilities to the personnel involved in the same.
c. Budgets may be prepared for the entire organisation or for each department, division etc.
13. What is Control Accounting?
a. It is a device for incorporating different control techniques in accounting.
b. It involves maintenance of records in such a way that the data for control can be obtained
whenever required and, in the form, required.
(Chapter 2 to Chapter 5)
1. What are the tools of Management Accounting?
Tools of Management Accounting
1. Tools of Financial Statement Analysis 2. Costing Techniques
a. Comparative Statements a. Standard Costing
b. Common-size Statements b. Marginal Costing
c. Trend Analysis c. Differential Costing
d. Ratio Analysis d. Direct Costing
e. Funds flow analysis e. Budgetary Control
f. Cash flow analysis f. Control Accounting
2. What are Comparative Statements?
a. Comparative statements are the statements showing the figures at different periods of time
and the changes in the figures over the periods in absolute terms and in percentages.
b. Comparative statements are prepared for two years.
c. The two comparative statements are
(i) Comparative Balance Sheet
(ii) Comparative Income Statement
d. Comparative balance sheet shows the assets and liabilities at different periods of time along
with the increase or decrease in each item in absolute terms and in percentages.
e. Comparative Income Statement shows the expenses, revenues and the profit or loss at
different periods of time along with the increase or decrease in each item in absolute terms
and in percentages.
3. What are Common-Size Statements?
a. Common-Size Statements show the different figures as a percentage to a common base.
b. The total assets or liabilities are taken as 100 and all the individual items are expressed as a
percentage to the total.
c. The Common-Size Statements prepared are
(i) Common-Size Balance Sheet
(ii) Common-Size Income Statement
d. Common-Size Statements enable vertical analysis of items.
4. What do you mean by Trend Analysis?
a. Trend refers to the tendency of movement.
b. Trend analysis refers to the study of movement of figures over a period.
c. The trend may be regular or irregular.
d. If it is regular, it may show an increasing tendency or decreasing tendency.
e. For financial statement analysis, trend percentages can be calculated.
f. One year, generally the first year is taken a s the base year.
g. The figures for the base year are taken as 100
h. The figures for the other years are expressed as a percentage to the base year and the
trend is analysed.
i. Trend analysis is useful in Forecasting and Budgeting.
, 5. What is Ratio Analysis?
a. Ratio Analysis is concerned with computation of different ratios for the purpose of analysis.
b. Ratios are understood for two interconnected figures.
c. Ratios simplify the data for comparison and analysis.
6. What is Funds Flow Analysis?
a. Funds flow analysis is concerned with preparation of funds flow statement to show the
movement of funds.
b. It shows the different sources and applications of fund and the net effect.
c. It gives the reasons for inflow and outflow of funds.
d. Working Capital here refers to the excess of current assets over current liabilities.
7. What is Cash Flow Analysis?
a. Cash flow analysis is concerned with preparation of cash flow statement that shows the
movement of cash.
b. Cash flow statement states the reasons for change in cash position between two dates.
c. It states the various sources and applications of cash and cash equivalents.
8. What is Standard Costing?
a. It is the technique of cost control that involves fixing standards, measuring actuals and
analysis of variances.
b. It requires proper accounting of the standards and actuals.
c. Analysis of variances helps in identifying the points of efficiency or inefficiency and the
departments or units requiring proper attention.
d. It helps in cost reduction and cost control.
9. What is Marginal Costing?
a. It is the technique that shows the ascertainment of marginal cost and analyses profit at
different levels by differentiating between fixed costs and variable costs.
b. Variable costs are considered as product costs and fixed costs are written off against the
profit during the period.
10. What is Differential Costing?
a. It is the technique that shows the difference between costs and the difference between
revenues are compared for the purpose of analysis and decision making.
b. When the income or revenue increases the difference is called incremental revenue and when
the revenue decreases the difference is called decremental revenue.
11. What is Direct Costing?
a. It is the technique that considers only direct costs while determining the cost of a product.
b. It also includes the fixed costs that can be identified with a product, department etc.
12. What is Budgetary Control?
a. Budgetary Control is the process that includes preparation of budget, measurement of actual,
comparison of actual with budgeted figures and taking corrective measures.
b. Budgetary Control fixes responsibilities to the personnel involved in the same.
c. Budgets may be prepared for the entire organisation or for each department, division etc.
13. What is Control Accounting?
a. It is a device for incorporating different control techniques in accounting.
b. It involves maintenance of records in such a way that the data for control can be obtained
whenever required and, in the form, required.
