UNIT 1
INTRODUCTION TO MANAGEMENT ACCOUNTING
MANAGEMENT ACCOUNTING
Management Accounting which is also known as Accounting for Managers is a process of
collecting information (both qualitative and quantitative) from various sources such as
Financial Accounting, Cost Accounting, Tax Accounting, Human Resource Accounting, etc.
selecting the important ones out of the total, analyzing them with the help of certain tools or
techniques and then pass on to the management for taking decisions in the interest of the
organization and the parties interested into it.
Therefore it can be said that the Management Accounting is selective in nature where only
important information are supplied to the management which have been collected from
different sources. The management takes both routine and strategical decisions with the help
of the information.
SCOPE
Financial Accounting: The financial accounting is a process of identifying, recording, classifying,
summarizing, analyzing and interpreting the financial results of a business organization. It is also known as
art and science
Cost Accounting: The cost accounting is a process of calculating cost of goods or services by using
different methods or techniques. It determines the total cost of the product and the selling price by adding
sufficient profit into it
Budgeting and Forecasting: Budgeting is a process of preparing budgets by taking various steps for the
attainment of predetermined objectives while forecasting is an estimation regarding long future for making
assessment of future opportunities and threats available for the organization.
Management Reporting System: It is a system which is adopted and implemented by modern
organizations these days for free and prompt information sharing so that the required updating is brought
about and the management get ready to transform the organization and its structure to cope with the changes
in the internal and external environments.
Tax Accounting: Every business organization has tax liabilities which are calculated, planned and paid
from time to time. The tax laws have a tendency of fast changes year or year due to tax authorities or the
concerned Govt.
Human Resource Accounting: It is that branch of accounting which maintains records of the
employees/human resource of an organization right from the date of their joining the organization and up to
their retirement/death/leaving the organization.
Financial Analysis: The data collected from various sources are studied with the help of appropriate
statistical techniques such as mean, mode, median, CAGR, Ratios, common size statements, trends, break-
even point, etc.
BASIS FOR COMPARISON FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING
Meaning Financial Accounting is an The accounting system which provides
accounting system that focuses on relevant information to the managers to make
the preparation of a financial policies, plans and strategies for running the
statement of an organisation to business effectively is known as the
provide financial information to management accounting.
the interested parties.
Type of Orientation Historical in nature and based on Future related in nature. to take decisions for
past records and transactions the future of the company.
Users Both internal and external users Only internal users
Nature of statements prepared General-purpose financial Special purpose financial statements to make
statements to show a true and fair specific decisions for the company
view of a company
Rules and Regulations Rules of GAAP, IND AS are No fixed rules for the preparation of reports
followed
Nature of reports Only financial aspects of Both financial and non-financial aspects of
accounting accounting
1
, Time Span given Financial statements are prepared Management Reports are prepared whenever
for a fixed period, i.e. one year. needed.
Objectives To create periodical reports and To assist internal management in the planning
judge the financial position of the and decision-making process by providing
firm. detailed information on various matters.
Publishing and auditing Required to be published and It is not meant to be published or audited. It is
audited by statutory auditors for internal use only.
Format of the financial statements Specified by the respective Not specified by any authority or an institution
authority or an institution and
cannot deviate from the format
Basis of comparison Cost Accounting Management Accounting
Provision of non-financial as well as
Control and calculation of costs
Meaning financial information for the purpose of
inside the organisation.
decision-making at the managerial level.
Involves both non-financial and financial
The focus is primarily on
Information Type information for making decisions
information related to cost
strategically.
Objective - Cost Accounting vs Determination of cost analysis, Assisting planning, managerial decision-
Management Accounting cost control, and overall costs. making as well as control.
Entertains a broader focus encompassing
The primary concentration is on
finance and financial aspects like
Scope the incurred cost of production
evaluation of performance and planning
and activities related to cost.
strategically.
Involvement of several methods Involves variance analysis, budgeting,
Specific Procedure like job, process, and activity- investment analysis, and forecasting,
based costing. among others.
Analysis and records different non-
Puts emphasis on the recording
Recording financial and financial data for the purpose
and analysis of the incurred cost
of management.
Helps in price planning, cost
Planning - Cost Accounting vs Ensures resource allocation. strategic
planning, and planning of
Management Accounting planning, and budgeting.
various cost-control measures.
Offers necessary input for the
Interdependency processes concerning Makes use of accounting data
management accounting.
2
, UNIT 2 : FINANCIAL STATEMENT ANALYSIS
I. COMPARATIVE INCOME STATEMENT AND COMMON SIZE INCOME STATEMENTS:
FORMAT FOR COMPARATIVE INCOME STATEMENT
% = (Increase or Decrease Amt / Previous Year Amt) × 100
Previous Current Increase (+) (or) Decrease (-)
Particulars
Year Year Amount Percentage
Net Sales xxx xxx xxx xxx
Less: Cost of Goods sold xxx xxx xxx xxx
Gross Profits (A) xxx xxx xxx xxx
Operating Expenses:
Office and Admin, Expenses xxx xxx xxx xxx
Selling and Distribution Expenses xxx xxx xxx xxx
Total Operating Expenses (B) xxx xxx xxx xxx
Operating Profits (A) – (B) xxx xxx xxx xxx
Add: Non – Operating Incomes: xxx xxx xxx xxx
xxx xxx xxx xxx
Less: Non – Operating Expenses: xxx xxx xxx xxx
Net Profits after Tax xxx xxx xxx xxx
FORMAT FOR COMMON SIZE INCOME STATEMENT
% = (Given Amt / Sales Amt) × 100
Previous Current Increase (+) (or) Decrease (-)
Particulars
Year Year Amount Percentage
Net Sales xxx xxx xxx xxx
Less: Cost of Goods sold xxx xxx xxx xxx
Gross Profits (A) xxx xxx xxx xxx
Operating Expenses:
Office and Admin, Expenses xxx xxx xxx xxx
Selling and Distribution Expenses xxx xxx xxx xxx
Total Operating Expenses (B) xxx xxx xxx xxx
Operating Profits (A) – (B) xxx xxx xxx xxx
Add: Non – Operating Incomes: xxx xxx xxx xxx
xxx xxx xxx xxx
Less: Non – Operating Expenses: xxx xxx xxx xxx
Net Profits before Tax xxx xxx xxx xxx
Less: Income Tax Paid xxx xxx xxx xxx
Net Profits after Tax xxx xxx xxx xxx
3
, PROBLEMS
1. From the following profit and loss account and balance sheet of Raj Industries. Prepare a Comparative
Income Statement, Common Size Income Statement.
Profit and Loss Account for the Year ended 31st December
Particulars 2015 2016 Particulars 2015 2016
To Cost of Goods Sold 300 375 By Net Sales 400 500
To Administrative Expenses 10 10
To Selling Expenses 15 20
To Net Profits 75 95
400 500 400 500
2. From the following profit and loss account and balance sheet of Raj Industries. Prepare a Comparative
Income Statement, Common Size Income Statement.
Profit and Loss Account for the Year ended 31st December
Particulars 2015 2016 Particulars 2015 2016
To Cost of Goods Sold 420 525 By Net Sales 560 700
To Administrative Expenses 14 14
To Selling Expenses 21 28
To Net Profits 105 133
560 700 560 700
3. From the following profit and loss account and balance sheet of Navi Ltd. Prepare a Comparative Income
Statement, Common Size Income Statement.
Particulars 2014 2015 Particulars 2014 2015
To Cost of Goods Sold 500 640 By Net Sales 700 900
To Administrative Expenses 20 20
To Selling Expenses 30 40
To Net Profits 150 200
700 900 700 900
4. From the following profit and loss account and balance sheet of Navi Ltd. Prepare a Comparative Income
Statement, Common Size Income Statement.
Particulars 2014 2015 Particulars 2014 2015
To Cost of Goods Sold 1,200 1,536 By Net Sales 1,680 2,160
To Administrative Expenses 48 48
To Selling Expenses 72 96
To Net Profits 360 480
1,680 2,160 1,680 2,160
4
INTRODUCTION TO MANAGEMENT ACCOUNTING
MANAGEMENT ACCOUNTING
Management Accounting which is also known as Accounting for Managers is a process of
collecting information (both qualitative and quantitative) from various sources such as
Financial Accounting, Cost Accounting, Tax Accounting, Human Resource Accounting, etc.
selecting the important ones out of the total, analyzing them with the help of certain tools or
techniques and then pass on to the management for taking decisions in the interest of the
organization and the parties interested into it.
Therefore it can be said that the Management Accounting is selective in nature where only
important information are supplied to the management which have been collected from
different sources. The management takes both routine and strategical decisions with the help
of the information.
SCOPE
Financial Accounting: The financial accounting is a process of identifying, recording, classifying,
summarizing, analyzing and interpreting the financial results of a business organization. It is also known as
art and science
Cost Accounting: The cost accounting is a process of calculating cost of goods or services by using
different methods or techniques. It determines the total cost of the product and the selling price by adding
sufficient profit into it
Budgeting and Forecasting: Budgeting is a process of preparing budgets by taking various steps for the
attainment of predetermined objectives while forecasting is an estimation regarding long future for making
assessment of future opportunities and threats available for the organization.
Management Reporting System: It is a system which is adopted and implemented by modern
organizations these days for free and prompt information sharing so that the required updating is brought
about and the management get ready to transform the organization and its structure to cope with the changes
in the internal and external environments.
Tax Accounting: Every business organization has tax liabilities which are calculated, planned and paid
from time to time. The tax laws have a tendency of fast changes year or year due to tax authorities or the
concerned Govt.
Human Resource Accounting: It is that branch of accounting which maintains records of the
employees/human resource of an organization right from the date of their joining the organization and up to
their retirement/death/leaving the organization.
Financial Analysis: The data collected from various sources are studied with the help of appropriate
statistical techniques such as mean, mode, median, CAGR, Ratios, common size statements, trends, break-
even point, etc.
BASIS FOR COMPARISON FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING
Meaning Financial Accounting is an The accounting system which provides
accounting system that focuses on relevant information to the managers to make
the preparation of a financial policies, plans and strategies for running the
statement of an organisation to business effectively is known as the
provide financial information to management accounting.
the interested parties.
Type of Orientation Historical in nature and based on Future related in nature. to take decisions for
past records and transactions the future of the company.
Users Both internal and external users Only internal users
Nature of statements prepared General-purpose financial Special purpose financial statements to make
statements to show a true and fair specific decisions for the company
view of a company
Rules and Regulations Rules of GAAP, IND AS are No fixed rules for the preparation of reports
followed
Nature of reports Only financial aspects of Both financial and non-financial aspects of
accounting accounting
1
, Time Span given Financial statements are prepared Management Reports are prepared whenever
for a fixed period, i.e. one year. needed.
Objectives To create periodical reports and To assist internal management in the planning
judge the financial position of the and decision-making process by providing
firm. detailed information on various matters.
Publishing and auditing Required to be published and It is not meant to be published or audited. It is
audited by statutory auditors for internal use only.
Format of the financial statements Specified by the respective Not specified by any authority or an institution
authority or an institution and
cannot deviate from the format
Basis of comparison Cost Accounting Management Accounting
Provision of non-financial as well as
Control and calculation of costs
Meaning financial information for the purpose of
inside the organisation.
decision-making at the managerial level.
Involves both non-financial and financial
The focus is primarily on
Information Type information for making decisions
information related to cost
strategically.
Objective - Cost Accounting vs Determination of cost analysis, Assisting planning, managerial decision-
Management Accounting cost control, and overall costs. making as well as control.
Entertains a broader focus encompassing
The primary concentration is on
finance and financial aspects like
Scope the incurred cost of production
evaluation of performance and planning
and activities related to cost.
strategically.
Involvement of several methods Involves variance analysis, budgeting,
Specific Procedure like job, process, and activity- investment analysis, and forecasting,
based costing. among others.
Analysis and records different non-
Puts emphasis on the recording
Recording financial and financial data for the purpose
and analysis of the incurred cost
of management.
Helps in price planning, cost
Planning - Cost Accounting vs Ensures resource allocation. strategic
planning, and planning of
Management Accounting planning, and budgeting.
various cost-control measures.
Offers necessary input for the
Interdependency processes concerning Makes use of accounting data
management accounting.
2
, UNIT 2 : FINANCIAL STATEMENT ANALYSIS
I. COMPARATIVE INCOME STATEMENT AND COMMON SIZE INCOME STATEMENTS:
FORMAT FOR COMPARATIVE INCOME STATEMENT
% = (Increase or Decrease Amt / Previous Year Amt) × 100
Previous Current Increase (+) (or) Decrease (-)
Particulars
Year Year Amount Percentage
Net Sales xxx xxx xxx xxx
Less: Cost of Goods sold xxx xxx xxx xxx
Gross Profits (A) xxx xxx xxx xxx
Operating Expenses:
Office and Admin, Expenses xxx xxx xxx xxx
Selling and Distribution Expenses xxx xxx xxx xxx
Total Operating Expenses (B) xxx xxx xxx xxx
Operating Profits (A) – (B) xxx xxx xxx xxx
Add: Non – Operating Incomes: xxx xxx xxx xxx
xxx xxx xxx xxx
Less: Non – Operating Expenses: xxx xxx xxx xxx
Net Profits after Tax xxx xxx xxx xxx
FORMAT FOR COMMON SIZE INCOME STATEMENT
% = (Given Amt / Sales Amt) × 100
Previous Current Increase (+) (or) Decrease (-)
Particulars
Year Year Amount Percentage
Net Sales xxx xxx xxx xxx
Less: Cost of Goods sold xxx xxx xxx xxx
Gross Profits (A) xxx xxx xxx xxx
Operating Expenses:
Office and Admin, Expenses xxx xxx xxx xxx
Selling and Distribution Expenses xxx xxx xxx xxx
Total Operating Expenses (B) xxx xxx xxx xxx
Operating Profits (A) – (B) xxx xxx xxx xxx
Add: Non – Operating Incomes: xxx xxx xxx xxx
xxx xxx xxx xxx
Less: Non – Operating Expenses: xxx xxx xxx xxx
Net Profits before Tax xxx xxx xxx xxx
Less: Income Tax Paid xxx xxx xxx xxx
Net Profits after Tax xxx xxx xxx xxx
3
, PROBLEMS
1. From the following profit and loss account and balance sheet of Raj Industries. Prepare a Comparative
Income Statement, Common Size Income Statement.
Profit and Loss Account for the Year ended 31st December
Particulars 2015 2016 Particulars 2015 2016
To Cost of Goods Sold 300 375 By Net Sales 400 500
To Administrative Expenses 10 10
To Selling Expenses 15 20
To Net Profits 75 95
400 500 400 500
2. From the following profit and loss account and balance sheet of Raj Industries. Prepare a Comparative
Income Statement, Common Size Income Statement.
Profit and Loss Account for the Year ended 31st December
Particulars 2015 2016 Particulars 2015 2016
To Cost of Goods Sold 420 525 By Net Sales 560 700
To Administrative Expenses 14 14
To Selling Expenses 21 28
To Net Profits 105 133
560 700 560 700
3. From the following profit and loss account and balance sheet of Navi Ltd. Prepare a Comparative Income
Statement, Common Size Income Statement.
Particulars 2014 2015 Particulars 2014 2015
To Cost of Goods Sold 500 640 By Net Sales 700 900
To Administrative Expenses 20 20
To Selling Expenses 30 40
To Net Profits 150 200
700 900 700 900
4. From the following profit and loss account and balance sheet of Navi Ltd. Prepare a Comparative Income
Statement, Common Size Income Statement.
Particulars 2014 2015 Particulars 2014 2015
To Cost of Goods Sold 1,200 1,536 By Net Sales 1,680 2,160
To Administrative Expenses 48 48
To Selling Expenses 72 96
To Net Profits 360 480
1,680 2,160 1,680 2,160
4
