MA THEORY
DIFFERENCES BETWEEN FA & MA
Topic
Meaning
Is it
compulsory?
Information
Objective
Financial Accounting
Focuses on the preparation of
financial statement of an
organization to provide the
financial information to the
interested parties.
Management Accounting
Provides relevant information to the
managers to make policies, plans and
strategies for running the business
effectively is known as Management
Accounting.
Yes
No
Monetary information only.
Monetary and non-monetary information
To assist the management in planning and
decision making process by providing
detailed information on various matters.
Not specified
To provide financial information
to outsiders.
Format
Specified
Financial Statements are prepared
The reports are prepared as per the need
Time Frame at the end of the accounting period
and requirements of the organization.
which is usually one year.
User
Internal and external parties
Only internal management.
Summarized Reports about the
Complete and Detailed reports regarding
Reports
financial position of the
various information.
organization
Publishing and Required to be published and
Neither published nor audited by
auditing
audited by statutory auditors
statutory auditors.
Management Accounting - It is the presentation of accounting information in such a way as to
assist the management in the creation of policies and the day to day operations of the
undertaking.
Overhead apportionment - The overheads, which can be easily shared by the two or more
departments on suitable basis, are called apportionment.
Profit centre - a part of a business which is expected to make an identifiable contribution to the
organization's profits.
CATEGORIES OF ACCOUNTING INFORMATION
1. Operating information.
Info required for day to day activities
2. Financial accounting information.
Meant both for owners and managers and also for the use of individuals and agencies external
to the business.
3. Management accounting information
makes use of both historical and estimated data in assisting management in daily operations
and in planning for future operations.
4. Cost accounting information
Provides multi dimensional information that helps in decision making.
EQUIVALENT UNITS
The number of units that would have been produced during a period if all of a department’s
effort had resulted in completed units of a product.
MANUFACTURING OVERHEADS
These includes all costs of manufacturing other than direct materials and direct
labour. E.g - Indirect costs, indirect labour.
OPPORTUNITY COST - Cost that's forgone for choosing an alternative.
SUNK COST - Cost incurred from a past time-frame
DIRECT COSTS - Those that can be traced to a particular cost object.
INDIRECT COSTS - Those that are not attributed directly to a particular good/service.
BUDGETED COSTS - Estimates of expenditure for different phases of business operations
such as manufacturing, administrative , sales,
STANDARD COSTS - Are scientifically predetermined costs of every aspect of business
activity and are control tools.
NON-MANUFCTURING COSTS.
1. Marketing and selling costs
2. Administrative costs
INDUSTRIAL ENGINEERING APPROACH.
This method involves an estimation of the required production inputs for certain output by
the engineers.
DISTINGUISH BETWEEN JOB-ORDER COSTING and PROCESS COSTING.
Job order costing system - Used in those manufacturing companies where many
different products or jobs are produced each period. In such a system, the cost of
materials used, direct labour and manufacturing overheads arc accumulated separately for
each job.
Process costing - Used in situations where manufacturing involves a single homogenous
product that is produced for long periods of time. The cost of raw materials used, direct
labour and overhead applicable are accumulated by department or process. The focal point
is therefore the department.
ASSUMPTIONS OF C.V.P ANALYSIS.
1.
2.
3.
4.
5.
6.
7.
Fixed costs will remain constant.
Variable costs will change proportionately with volume
Total cost = FC + VC
All units that are produced are sold.
Selling price remains constant
Sales volume is fixed.
Costs are only affected by volume
IMPORTANCE OF C.V.P
1.
2.
3.
4.
5.
Used for planning and budgeting
Used to evaluate projects and investments,
Used to determine the maximum sales level.
Used to find profitable combination of costs, i.e. FC & VC
Used for marketing.