Investors and creditors have limited resources and seek to place those resources where they will generate the best returns. To organise cost reduction programmes with the help of different departmental managers; 17. The main objectives of Cost Accounting are as follows : i Ascertainment of cost, ii Determination of selling price, iii Cost control and cost reduction, iv Ascertaining the profit of each activity, v Assisting management in decision-making. Facts are provided by past accounts on which forecast of future transactions is made. This is why we have an established system of recording and reporting accounting information. Following are some of the important objections usually raised: 1.
However, in every business there are numerous business transactions and it is not possible for the management to keep in their mind all business transactions. To provide specialised services of cost audit in order to prevent the errors and frauds and to facilitate prompt and reliable information to management; and 18. Streamline Office Work Flow Your accounting system should help you improve the work flow in your office by creating a central location for financial information and forms. Thus, management accounting is a useful tool in coordinating the various operations of the business. Each item of cost should be related to its cause as minutely as possible and the effect of the same on the various departments should be ascertained. Principles of Double Entry Should be Followed Preferably: To lessen the chances of any mistake or error, cost ledgers and cost control accounts, as far as possible, should be maintained on double entry principles.
Comparing the two gives you a snapshot of the company's profits or losses, although there are often other factors that determine whether your company is successful. Management can then analyze past behavior and draw lessons about how they could have performed better and used resources more efficiently. Others argue that the world is quite complex, and accounting must necessarily be rules-based. They do not have any capital stock at hand and need to obtain them from investors. However, the effect of all these transactions needs to be aggregated over a period of time.
To organise an effective information system so that different levels of management may get the required information at the right time in right form for carrying out their individual responsibilities in an efficient manner; 12. Control over assets and liabilities For running a business successfully a businessman is to acquire various assets like land, building, machinery etc. A businessman can take the right steps for controlling the quantity of assets decrease and liability increase. To depict financial position of the business: A businessman is also interested in ascertaining his financial position at the end of a given period. Ascertainment of Cost There are two methods of ascertaining costs, viz.
Following are the objectives of Management Accounting: 1 Measuring performance: Management accounting measures two types of performance. It may be stated in this connection that a costing system must be a profitable investment and should produce benefits commensurate with the expenditure incurred on the system. So it is hasty to find fault with the system, if it fails to produce the desired results. Ascertaining the profit of each activity The profit of any activity can be ascertained by matching cost with the revenue of that activity. Thus, strength and weakness of the managerial decisions are based on the strength and weakness of the accounting records.
To organise the internal audit system to ensure effective working of different departments; 16. In order to help companies meet this objective, public accountants will independently verify accounting treatments and transactions and issue opinions of the basis of these audits. The profit and loss account is prepared at the end of a period and if the amount of revenue for the period is more than the expenditure incurred in earning that revenue, there is said to be a profit. To reveal sources of economy by installing and implementing a system of cost control for materials, labour and overheads; 8. By having comparable data, these investors are able to make relative judgments about their investment opportunities. Expensive: It is said that the cost involved in installing and working a cost system is out of all proportions to the benefits derived therefrom. The accounting information is made available to them in the form of annual report.
For this purpose, it is necessary to rely upon cost data supplied by Cost Accountants. Thus, it is clear from the above that the management accounting is based on financial accounting and cost accounting. In this way, management accounting facilitates control. To be relevant, information must also be current. Helps in the Solution of Strategic Business Problems: Whenever there is a question of starting a new business, expanding or diversifying the existing business, strategic business problem has to be faced and solved. Proper decision making and analysis of profits are impossible if records are not maintained systematically in a company.
Helps in Motivating Employees: The management accountant by setting goals, planning the best and economical course of action and then measuring the performance tries his best to increase the effectiveness of the organisation and thereby motivate the members of the organisation. Helps in the Interpretation of Financial Information 3. They have over 400,000 members worldwide. Objectives of Accounting Standards : In earlier days, accounting was just used for recording business transactions of financial nature. Consistency Deviations in measured outcomes from period to period should be the result of deviations in underlying performance not accounting quirks. Cost saving could be a temporary affair and may be at the cost of quality. This will ensure the correctness of cost sheets and cost statements which are prepared for cost ascertainment and cost control.
The sum and substance of accounting, thus, is from the recording of transactions to communicating the results thereof to the concerned parties. For making a choice between different courses of action, it is necessary to make a comparison of the outcomes, which may be arrived under different alternatives. In case the expenditure exceeds the revenue, there is said to be a loss. The financial statements are used internally by management to manage both the current operations and future activities for the firm. Annual Reports, Cash Flow Statements, Graphs and Charts are the various means which can be used to communicate the relevant information to intended users. The failure of a system may be due to several causes such as apathy or indifference of management, lack of adequate facilities, non-co-operation or opposition from the employees. Inapplicability: It is argued that modern methods of costing are inapplicable to many types of industries.
To exercise cost control, broadly speaking the following steps should be observed: i Determine clearly the objective, i. The definition of cost reduction does not, however, include reduction in expenditure arising from reduction in taxation or similar Government action or the effect of price agreements. It records income and expenditure relating to production of goods and services. However, since the paths to accounting are relatively narrow, you will have to work extra hard to set yourself apart. This is not the fault of the system.