Items Included In The Assets Side Of Balance Sheet

Following types of assets are recorded in the assets side of balance sheet

1.Fixed Assets

Those assets which are acquired and held permanently for a long time in the business are fixed assets. These types of assets are recorded under the assets side in the balance sheet.

2.Current Assets

Those assets which can not be put to constant uses and intended for resale or which in the ordinary course of business will be converted into other assets are current assets.

3.Intangible Assets

Intangible assets are those assets which can not be touched,seen and have no volume but have value. They are included in the assets side while preparing balance sheet.

4.Wasting Assets

Wasting assets are also included in the assets side of balance sheet. Those assets which are depicted gradually or exhausted in the process of earning income are known as wasting assets.

Items Included In The Balance Sheet

Items Included In The Assets Side Of Balance Sheet

1. Fixed Assets
2. Current Assets
3. Wasting Assets
4. Intangible Assets
5. Investments
6. Fictitious Assets

Items Include In The Liabilities Side Of Balance Sheet

1. Fixed Liabilities
2. Long Term Liabilities
3. Current Liabilities
4. Contingent Liabilities

Concept And Meaning Of Balance Sheet

Balance Sheet is a tabular statement of balances carried forward after closing the books of account kept according to principles of accounting.Balance sheet is a statement prepared with a view to measure the financial position of a business on a certain fixed date.Balance sheet indicates the financial position of a concern by its assets on a given date and its liabilities on that date.Excess of assets over liabilities represents capital or net worth or shareholders' fund and is indicative of the financial soundness of a company.

Differences Between Financial Accounting And Management Accounting

Main distinctions or differences between financial accounting and management accounting can be expressed as follows

1. Objective

The main objective of financial accounting is to measure business income and communication of business information to the various categories of persons like management , creditors , suppliers , bankers , investors etc.whereas the main objective of management accounting is to help the internal management.

2. Deals With

The financial accounting deals with all the activities of the business , assesses results of the business as a whole and reveals the overall performance and position of the enterprise whereas management accounting is limited in its coverage. Management accounting concerns with the activities of the different units , departments or divisions and deals with significant activities of the business.

3. Emphasis On

Financial accounting lays emphasis on the past activities and represents historical records whereas management accounting stresses the future and uses historical costs and data for estimating the future.

4. Recording

Financial accounting records the transactions relating to income , expenses , revenue , personal accounts whereas management accounting reports costs and revenue by profit center or responsibility center.

Limitations Of Management Accounting

Though management accounting is helpful tool to the management as it provides information for planning, controlling and decision making, still its effectiveness is limited by a number of reasons. Some of the disadvantages or limitations of management accounting are as follows:

1. Based On Accounting Information

Management accounting is based on data and information provided by financial accounting and cost accounting. As such the correctness and effectiveness of managerial decisions will depend upon the quality of data provided by cost and financial accounts. So, effectiveness of management account is limited to the reliability of sources of information.

2. Lack Of Knowledge

The use of management accounting requires the knowledge of number of related subjects. Deficiency in knowledge in related subjects like accounting principles, statistics, economics, principle of management etc. will limit the use of management accounting.

3. Intensive Decisions

Decision taking based on management accounting that provide scientific analysis of various situations will be time consuming one. As such management may avoid systematic procedures for taking decision and arrive at decision using intuitive. And intuitive limit the usefulness of management accounting.

4. Management Accounting Is Only A Tool

The tools and techniques of management accounting provide only information and not decisions. Decisions are to be taken by the management and implementation of decisions are also done by management.

                     Also Read: Roles Of Management Accounting

5. Evolutionary Stage

Management accounting is still in a development stage and has not yet reached a final stage. The techniques and tools used by this system give varying and differing results. It is still named as internal accounting and/ or operational accounting.

6. Personal Prejudices And Bias

The interpretation of financial information may differ from person to person depending upon the capability of the interpreter. Analysis and interpretation of data and information may be influenced by personal basis. As such, the objectivity of decision may be affected by personal prejudices and bias.

                   Also Read: Merits Of Management Accounting

7. Psychological Resistance

Changes in traditional accounting practices and organizational set up are required to install the management accounting system. It call for a rearrangement of the personnel and their activities and framing of new rules and regulations which generally may not be liked by the people involved.

Merits Of Management Accounting

Management accounting is very useful for every business organizations. The main advantages or merits of management accounting are interpretation of data and information, performance comparison, planning, forecasting, controlling, coordinating, better organizing etc. Advantages of management accounting can be described with the help of following points.

1. Analyzing And Interpretation Of Data

Management accounting analyze and interpret systematically the information collected from within and outside the business and communicate the result to the management. This will help in implementing managerial policy decision effectively.

2. Comparing The Performance

Management accounting helps in comparing actual performance with the budgeted standard and reporting management by deviations of corrections.

3. Proper Planning, Forecasting And Budgeting

All the business activities are planned well ahead base on the accounting information applying budgeting and forecasting techniques. As such, all the activities are expected to be interwoven and well integrated to achieve the set goal. The said budgeting and forecasting techniques are efficiently applied with the help of management accounting.

4. Effective Controlling

Management accounting techniques help the business control its activities efficiently. It helps in utilizing its capital in an optimal way.

5. Cope With The Changing Environment

The management accounting often takes cognizance of the changes in the economic environment caused by government policies and other economic forces. This helps the business combat and accommodate it to such changes. Even the management accounting helps the business to get rid of the seasonal and cyclical fluctuations.

6. Better Coordination

Better coordination is also another notable advantage of management accounting. It facilitates coordination between different departments and helps in attaining the objectives of the business as a whole.

7. Better Organizing

Management accounting plays a significant role in organizing the business on a sound footing. It assist the management with the help of internal control and internal audit in fixing targets, responsibilities, appraisal of performance, problem and solutions of these cost and profit centers and executing overall control of business activities.

8. Taking Corrective Measures

Management accounting often compares the actual performance with the standard and analyze the reasons for any deviation there have and offers suggestions to take corrective measures.

Scope Of Management Accounting

The scope or field of management accounting is very wide and broad based and it includes a variety of aspects of business operations. The main aim of management accounting is to help management in its functions of planning, directing, controlling and areas of specialization included within the admit of management accounting. The scope of management accounting can be studied as follows:

1. Financial Accounting
Financial accounting forms the basis for analysis and interpretation for furnishing meaningful data to the management. The control aspect is based on financial data and performance evaluation, on recorded facts and figures. So, management accounting is closely related to financial accounting in many respects.

                     Also Read: Concept And Meaning Of Management Accounting

2. Cost Accounting
Cost accounting is the process and techniques of ascertaining cost. Planning, decision making and control are the basic managerial functions. The cost accounting system provides the necessary tool for carrying out such functions efficiently. The tools includes standard costing, inventory management, variable costing etc.

3. Budgeting And Forecasting
Budgeting means expressing the plans, policies and goals of the firm for a definite period in future. Forecasting on the other hand, is a prediction of what will happen as a result of a given set of circumstances. Forecasting is a judgement whereas the budgeting is an organizational object. These are useful for management accounting in planning.

                          Also Read: Roles Of Management Accounting

4. Inventory Control
Inventory is necessary to control from the time it is acquire till its final disposal as it involves large sum. For controlling inventory, management should determine different level of stock. The inventory control technique will be helpful for taking managerial decisions.

5. Statistical Method
Statistical tools not only make the information more impressive, comprehensive and intelligible but also are highly useful for planning and forecasting.

                        Also Read: Merits Of Management Accounting

6. Interpretation Of Data
Analysis and interpretation of financial statements are important part of management accounting. After analyzing the financial statements, the interpretation is made and the reports drawn from this analysis are presented to the management. Interpreting the accounting data to the authorities in the management is the principal task of management accounting.

7. Reporting To Management
The interpreted information must be communicated to those who are interested in it. The report may cover Profit and Loss Account, Cash Flow and Funds Flow statements etc.

                     Also Read: Limitations Of Management Accounting

8. Internal Audit And Tax Accounting
Management accounting studies all the tax matters to assist the management in investment decisions vis-a-vis tax planning as a resource to enjoy tax relief.
Internal audit system is necessary to judge the performance of every department. Management is able to know deviations in performance through internal audit. It also helps management in fixing responsibility of different individuals.

9. Methods Of Procedures
This includes maintenance of proper data processing and other office management services. It may have to deal with filing, copying, duplicating, communicating and management information system and also may have to report about the utility of different office machines.

Functions Of Management Accounting

Management accounting helps the management to run the business smoothly by providing data and information obtained from cost and financial accounting. Key functions of management accounting are as follows:

1. Helps In Forecasting 

Management accounting gathers important data and information about the business. These data are used for forecasting purpose by the top level management.

2. Helps In Coordinating

Management accounting helps to maintain coordination among different units, departments, sections, branches and employees in the organization

3. Helps In Organizing

Organizing is another major function of management accounting. It ensures better allocation of resources to each levels of management which helps to increase efficiency and productivity.

4.Helps In Controlling

Management accounting practices standard costing and budgetary control techniques which facilitate better controlling in the organization
5. Financial Analysis And Interpretation.

With the help of trend analysis and ratio analysis, management accounting is useful for financial analysis and interpretation of data.

6. Helps In Communication

After financial analysis and interpretation of data, it supplies necessary information (both financial and non financial) to the users (employees, shareholders, government etc.). So, management accounting can be used as the communication tool in the business organization.

7. Employee Motivation

Employee motivation is another function of management accounting. It motivates the employees by providing monetary and non monetary rewards to the employees on the basis of their performance.

8. Helps In Decision making

Top level management can take quality decisions by using data and information collected, analyzed and interpreted by management accounting. 

Role Of Management Accounting

Management accounting helps the to level management by providing factual information obtained by cost and financial accounting. It is helpful for formulating policies, planning, making decisions and controlling the organizational activities.The main objectives or roles of management accounting are as follows.

1. Planning And Formulation Of Policies.

Future plans and policies are formulated on the basis of past financial data and information. Management accounting use historical data for planning and policy formulation purpose.

2. Controlling Performance.

Better controlling ensures effective utilization of resources and minimize wastage. So, management accounting helps to boost employees' performance with proper control.

3. Interpretation Of Financial Information.

It helps the management to interpret various financial information provided by cost accounting and financial accounting.

4. Better Coordination

Another key role of management accounting is that it helps the management to maintain better coordination among employees and operations in the organization.

5. Better Organizing

Better organizing is another notable objective of management accounting. It helps proper organizing at the workplace that ensures better and smooth operation.

6. Evaluation Of Efficiency And Effectiveness

It compares actual performance with budgeted or standard performance. It helps to evaluate the efficiency and effectiveness of organizational performance..

7. Motivating Employees

Motivation is essential to boost employee performance which helps to increase productivity of the firm. So, management accounting practices reward system, promotion, transfer etc. to inspire employees in the organization.

8. Solution Of Business Problems.

Management accounting takes various actions to solve business problems so business activities can be carried out easily without any disturbance.

Concept And Meaning Of Management Accounting

Introduction To Management Accounting

Management accounting is the presentation of accounting information in such a way as to assist management in the creation of policy and the day to day operation of an undertaking.Management accounting relates to the use of accounting data collected by financial and cost accounting for the purpose of policy formulation, planning , control and decision-making by the top management. Management accounting uses all techniques of financial and cost accounting to help management to make decision in a scientific manner.

Differences Between Financial Accounting And Cost Accounting

The main differences between financial accounting and cost accounting are given as under.

1.Financial accounting provides information about the business in general way.Financial accounting tells about the profit and loss and financial position of the business.Cost accounting provides information to the management for proper planning,control and decision making.

2. Financial accounting classifies,records and analyses the transactions in subjective manner or according to the nature of expenses.Cost accounting records the expenditure in an objective manner or according to the purposes for which the cost are incurred.

3.Financial accounts are the accounts of the whole business.Cost accounting is only a part of financial accounts.

4. Financial accounts are relate to commercial transactions of the business.Cost accounts are related to transactions connected with the manufacture of goods and services.

5.Financial accounts disclose the net profit or loss of the business as a whole.Cost accounts disclose profit or loss of each product, job or service.

Concept And Meaning Of Cost Accounting

Cost accounting has been developed due to limitations of financial accounting. Financial accounting is concerned with record keeping directed towards the preparation of Profit and Loss Account and Balance Sheet. It provides information regarding the profit and loss which is helpful for the management to control the major functions of business like finance , administration , production and distribution.But details regarding operating efficiency to these divisions are lacking in financial accounting.

Cost accountancy is the application of costing and cost accounting principles,methods and techniques to the science , art and practice of cost control and the ascertainment of profitability.

Concept And Meaning Of Financial Accounting

Financial accounting is a branch of accounting which is concerned with the preparation of financial statements for decision makers. Financial accounting is used to prepare accounting information for internal and external users. Therefore financial accounting may be defined as the process of summarizing financial data and publishing annual reports for the benefit of the people inside and outside the organization.