Top 11 Techniques used in Management Accounting

The following points highlight the top eleven techniques management accounting. The techniques are: 1. Financial Planning 2. Analysis of Financial Statements 3. Historical Cost Accounting 4. Standard Costing 5. Budgetary Control 6. Marginal Costing 7. Funds Flow Statement 8. Cash Flow Statement 9. Decision Making 10. Revaluation Accounting 11. Statistical and Graphical Techniques 12. Communicating.

Management Accounting: Technique # 1. Financial Planning:

Financial planning is the act of deciding in advance about the financial activities necessary for the concern to achieve its primary objectives. It includes determining both long term and short term financial objectives of the enterprise, formulating financial policies and developing the financial procedure to achieve the objectives.

The role of financial policies cannot be emphasized to achieve the maximum return on the capital employed. Financial policies may relate to the determination of the amount of capital required, sources of funds, govern the determination and distribution of income, act as a guide in the use of debt and equity capital and determination of the optimum level of investment in various assets.

Management Accounting: Technique # 2. Analysis of Financial Statements:

The analysis is an attempt to determine the significance and meaning of the financial statement data so that a forecast may be made of the prospects for future earnings, ability to pay interest and debt maturities and profitability of a sound dividend policy.

The techniques of such analysis are comparative financial statements, trend analysis, cash funds flow statements and ratio analysis. This analysis results in the presentation of information which will help the business executives, investors and creditors.

Management Accounting: Technique # 3. Historical Cost Accounting:

The historical cost accounting provides past data to the management relating to the cost of each job, process and department so that comparison may be made with the standard costs. Such comparison may be helpful to the management for cost control and for future planning.

Management Accounting: Technique # 4. Standard Costing:

Standard costing is the establishment of standard costs under most efficient operating conditions, comparison of actual with the standard, calculation and analysis of variance, in order to know the reasons and to pinpoint the responsibility and to take remedial action so that adverse things may not happen again. This aspect is necessary to have cost control.

Management Accounting: Technique # 5. Budgetary Control:

The management accountant uses the tool of budgetary control for planning and control of the various activities of the business. Budgetary control is an important technique of directing business operations in a desired direction, i.e., achieves a satisfactory return on investment.

Management Accounting: Technique # 6. Marginal Costing:

The management accountant uses the technique of marginal costing, differential costing and break even analysis for cost control, decision-making and profit maximisation.

Management Accounting: Technique # 7. Funds Flow Statement:

The management accountant uses the technique of funds flow statement in order to analyse the changes in the financial position of a business enterprise between two dates. It tells wherefrom the funds are coming in the business and how these are being used in the business. It helps a lot in financial analysis and control, future guidance and comparative studies.

Management Accounting: Technique # 8. Cash Flow Statement:

A funds flow statement based on increase or decrease in working capital is very useful in long-range financial planning. It is quite possible that there may be sufficient working capital as revealed by the funds flow statement and still the company may be unable to meet its current liabilities as and when they fall due. It may be due to an accumulation of inventories and an increase in trade debtors.

In such a situation, a cash flow statement is more useful because it gives detailed information of cash inflows and outflows. Cash flow statement is an important tool of cash control because it summarises sources of cash inflows and uses of cash outflows of a firm during a particular period of time, say a month or a year. It is very useful tool for liquidity analysis of the enterprise.

Management Accounting: Technique # 9. Decision Making:

Whenever there are different alternatives of doing a particular work, it becomes necessary to select the best out of all alternatives. This requires decision on the part of the management. The management accounting helps the management through the techniques of marginal costing, capital budgeting, differential costing to select the best alternative which will maximise the profits of the business.

Management Accounting: Technique # 10. Revaluation Accounting:

The management accountant, through this technique assures the maintenance and preservation of the capital of the enterprise. It brings into account the impact of changes in the prices on the preparation of the financial statements.

Management Accounting: Technique # 11. Statistical and Graphical Techniques:

The management accountant uses various statistical and graphical techniques in order to make the information more meaningful and presentation of the same in such form so that it may help the management in decision-making. The techniques used are Master Chart, Chart of Sales: and Earnings, Investment Chart, Linear Programming, Statistical Quality Control, etc.

Management Accounting: Technique # 12. Communicating:

The success or failure of the management is dependent on the fact, whether requisite information is provided to the management in right form at the right time so as to enable them to carry out the functions of planning, controlling and decision-making effectively.

The management accountant will prepare the necessary reports for providing information to the different levels of management by proper selection of data to be presented, organisation of data and selecting the appropriate method of reporting.

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