cannot effectively discharge its functions without a properly designed

Cannot effectively discharge its functions without a

This preview shows page 7 - 9 out of 522 pages.

cannot effectively discharge its functions without a properly designed financial accounting system. (ii) Financial Statement Analysis: Financial statement analysis is concerned with methodical classification and evaluation of the information provided by the income statement and the balance sheet so as to afford full diagnosis of the profitability and financial soundness of the business. Hence, financial statement analysis is also a useful tool of management accounting. (iii) Funds Flow Analysis : This is based on funds flow statement, which reveals the changes in the working capital position over a period of time. Working capital is considered to be the life-blood of the business and hence its effective and efficient management is necessary for the very survival of the business. Funds flow analysis is, therefore, an important tool of management accounting. (iv) Cash Flow Analysis : Cash flow analysis helps the business in its liquidity planning. It tells the management about the sources and applications of cash. It enables an enterprise for adjusting the liquidity position, re-arranging the maturity structure of its debts and making arrangements for availability of cash at the times desired. (v) Budgetary Control : This involves framing of budgets, comparison of actual performance with the budgeted figures, computation of variances, and undertaking remedial measures for minimising the variances or revising the budgets, if necessary. The technique of budgetary control helps the management in planning their operations and improving their performance. Hence, it is an important tool of management accounting. (7)
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(vi) Management Reporting : The efficiency of a business to a large extent is governed by the pertinence and regularity of the information provided to the managerial personnel. As a matter of fact, the ultimate effectiveness of information is itself dependent upon the form and timing of its presentation. Hence, an effective and efficient management information or reporting system is one of the important tools of management accounting. (vii) Cost Analysis : In today’s world of competition, the importance of cost analysis cannot be under emphasised. Cost analysis includes applications of both costing methods, viz., job costing, process costing, etc., arid costing techniques, viz., marginal costing, absorption costing, uniform costing etc. All these methods and techniques come in the ambit of “Cost Accounting”. 1.3 MEANING AND NATURE OF COST ACCOUNTANCY Cost accountancy is a wide term. It means and includes the principles, conventions, techniques and systems which are employed in a business to plan and control the utilisation of its resources. It is defined as “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. It includes the presentation of information derived there from for the purposes of managerial decision making” - C.I.M.A. London.
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