CHAPTER I

1.1 Introduction

A term (or research) paper is primarily a record of intelligent reading in several sources on a

particular subject. The task of writing such is not as formidable as it seems if it is thought out in

advance as a definite procedure with systematic perpetration. (www.ucc.vt.edu, 2013)

A term paper is a research paper written by students over an academic term, accounting for a

large part of a grade. Term papers are generally intended to describe an event, a concept, or

argue a point. A term paper is a written original work discussing a topic in detail, usually several

typed pages in length and is often due at the end of a semester. There is much overlap between

the terms "research paper" and "term paper". The phrase "term paper" was originally used to

describe a paper (usually a research based paper) that was due at the end of the "term" - either a

semester or quarter, depending on which unit of measure a school used. However, the term has

fallen out of favor. Common usage has "term paper" and "research paper" as interchangeable, but

this is not completely accurate. Not all term papers involve academic research, and not all

research papers are term papers.

Term papers date back to the beginning of the 19th century when print could be reproduced

cheaply and written texts of all types (reports, memoranda, specifications, and scholarly articles)

could be easily produced and disseminated. During the years from 1870 to 1900, Moulton and

Holmes (2003) write that "American education was transformed as writing became a method of

discourse and research the hallmark of learning."Russell (1991) writes that in the 1910s, "the

research paper began to harden into its familiar form" adding that plagiarism and the sale of

research papers both became a problem during this time.

In the present day an entire industry has sprung up to provide plagiarized, pre-written, or custom

written term papers to students of varying levels of education. There are many websites that sell

term papers of all levels of quality and writing proficiency, but are often claimed by academic

institutions as seriously undermining the academic integrity of the student. Use of such papers is

frowned upon by educators and administrators, and submission of these works is considered

plagiarism, and grounds for disciplinary action on the basis of academic dishonesty. These

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papers are in some rare cases used as a "model" for a student to use as a starting point in their

research, but this is also considered ethically questionable and is usually a pretext for plagiarism.

(www.rentcalculators.org, 2013)

1.2 Objectives of term paper

Exchange of knowledge and skills:

By sharing the result the students can get the knowledge from the conducted research work. So

researchers will be able carve up and barter their information with their friends and teachers.

When I prepared this term paper I got the knowledge for myself and also for the other friends as

during the research I had to have the knowledge about the relevant things which I can get from

other people as of  everywhere. Others can take exchange knowledge and skills from this paper

which is developed so that it can provide the knowledge and skills to the people.

Evaluation tool:

This paper can be exploited as an apparatus for evaluating the people. By the aid of this people

can be assessed by doing surveys and interviews and also by written questionnaires. As these

approaches are the sources of collecting data and then may also become the instruments for

assessments of the people so that the research can create its effect in the world towards

developing of many new innovations in the world. As up till now things are invented by

conducting the proper research. Therefore, innovation can meet the requirements and the need of

the people.

Career Making:

The research can be used for making careers of the people. As with the help of the research we

discover the many new things which may also help the people to find new career opportunities.

We can see many professions are identified through the research where people entered and have

new career and field and the services industry is going up and also improving day by day

(www.articlesbase.com, 2013).

2

CHAPTER II

2.1 Concept of Management Accounting

Management accounting can be viewed as Management-oriented Accounting. Basically it is the

study of managerial aspect of financial accounting, "accounting in relation to management

function". It shows how the accounting function can be re-oriented so as to fit it within the

framework of management activity. The primary task of management accounting is, therefore, to

redesign the entire accounting system so that it may serve the operational needs of the firm. If

furnishes definite accounting information, past, present or future, which may be used as a basis

for management action. The financial data are so devised and systematically development that

they become a unique tool for management decision (Sharma & Gupta, 1996).

The term “Management Accounting”, observe, Broad and Carmichael, covers all those services

by which the accounting department can assist the top management and other departments in the

formation of policy, control of execution and appreciation of effectiveness. This definition points

out that management is entrusted with the primary task of planning, execution and control of the

operating activities of an enterprise. It constantly needs accounting information on which to base

its decision. A decision based on data is usually correct and the risk of erring is minimized. The

position of the management in respect of its functions can be compared to that of an army

general who wants to wage a successful battle. A general can hardly fight successfully unless he

gets full information about the surrounding situation and the extent of effectiveness of each of

his battalions and, to the extent possible, even the enemy's intentions. Like a general a successful

management too strives to outstrip other competitors in the field by streamlining its operating

efficiency. It needs a thorough knowledge of the situation and the circumstances in which the

firm operates. Such knowledge can only be gained through the processed financial data rendered

by the accounting department on the basis of which it can take policy decision regarding

execution, control, etc. It is here that the role of management accounting comes in. It supplies all

sorts of accounting information in the form of such statements as may be needed by the

management. Therefore, management accounting is concerned with the accumulation,

3

classification and interpretation of information that assists individual executives to fulfill

organizational objectives.

The Report of the Anglo-American Council of Productivity (1950) has also given a definition of

management accounting, which has been widely accepted. According to it, "Management

accounting is the presentation of accounting information in such a way as to assist the

management in creation of policy and the day to day operation of an undertaking".

2.2 Origin and evolution of Management Accounting

The field of organizational activity encompassed by management accounting has developed

through four recognizable stages.

Stage 1 - Prior to 1950, the focus was on cost determination and financial control,

through the use of budgeting and cost accounting technologies;

Stage 2 - By 1965, the focus had shifted to the provision of information for management

planning and control, through the use of such technologies as decision analysis and

responsibility accounting;

Stage 3 - By 1985, attention was focused on the reduction of waste in resources used in

business processes, through the use of process analysis and cost management

technologies;

Stage 4 - By 1995, attention had shifted to the generation or creation of value through the

effective use of resources, through the use of technologies which examine the drivers of

customer value, shareholder value, and organizational innovation.

While these four stages are recognizable, the process of change from one to another has been

evolutionary.

Each stage of evolution represents adaptation to a new set of conditions facing organizations, by

the absorption, reshaping, and addition to the focus and technologies used previously. Each stage

is a combination of the old and the new, with the old reshaped to fit with the new in addressing a

new set of conditions in the management environment (www.mia.org, 2013).

The following diagram illustrates the four evolutionary stages of management accounting:

4

.

2.3 Nature and Scope of Management Accounting

2.3.1 Nature of Management Accounting

Nature of management accounting guides to know main characteristics of management

accounting. Following are main points which show the nature of management accounting.

No Fixed Norms Followed

In financial accounting, we follow different norms and rules for creating ledgers and other

account books. But there is no need to follow fixed norms in management accounting.

Management accounting tool may be different from one organization to other organization.

Using of different tools of management accounting is fully dependent on the persons who are

5

using it. So, business policy of each organization affects rules and regulation of applying

management accounting.

Increase in Efficiency

It is the nature of management accounting that it is used for increasing in the efficiency of

organization. It scans the points of inefficiency through analysis of accounting information. By

taking action for improving, organization can increase the efficiency. 

Supplies Information not Decisions

Management accountant supplies accounting facts and information and also provides

interpretation, but decision making is fully dependent on higher authorities. Management

accounting is just guide. 

Concerned with Forecasting 

It is the temperament of management accounting that it is fully concerned with forecasting. In

management accounting, historical accounting information is analyzed through common size

financial statement, ratio analysis, fund flow analysis and accounting data tendency for knowing

the probability of next fact. So, all these things are especially useful for forecasting. 

Reports for Internal Usage

Management accounts are always prepared for the company's internal use. Financial statements

are prepared for both the management as well as external stakeholders such as the investors, the

creditors and the government. These reports are never furnished to the public. The purview of

management accounting is smaller than that of financial accounting. These reports are always for

internal decision-making purposes.

Short-Term Reports

Management accounting prepares reports that are always short term in nature. The reports may

be prepared every day, week or fortnight. The managers are quickly able to identify the

deviations that have occurred in the company's projected path, allowing remedial measures to be

taken immediately if necessary. For example, if the company is receiving a lot of returns after it

sells its finished product, it means there is something wrong with the product. The company then

reviews the product and rectifies the inconsistency.

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2.3.2 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:

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.

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.

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 judgment whereas the budgeting is an organizational

object. These are useful for management accounting in planning.

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.

Statistical Method

7

Statistical tools not only make the information more impressive, comprehensive and intelligible

but also are highly useful for planning and forecasting.

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 (Malik, 2009).

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.

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.

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 (Malik, 2009).

2.4 Need and importance of mgmt accounting

Management accounting systems play a vital role in helping the managers of complex,

hierarchical organization to plan and to control their operation. The importance of managerial

accounting can be summarized in the following ways:

It helps to provide the information for decision making and planning, and proactively

participating as a part of management team in the decision making and planning process.

It helps to assists managers in the directing and controlling operational activities or day to

day operations through its attention-directing function.

8

It motivates the managers and other employees towards the organization’s goals.

It measures the performance of activities, subunits, managers and other employees within

the organization.

It helps to assists the organizations competitive position, and working with other

managers to ensure the organization’s long run competitiveness in its industry

(www.civil.pdn.ac.lk, 2103).

2.5 Functions of Management Accounting

The basic function of management accounting is to assist the management in performing its

functions effectively. The functions of the management are planning, organizing, directing and

controlling. Management accounting helps in the performance of each of these functions in the

following ways:

Provides data: Management accounting serves as a vital source of data for management

planning. The accounts and documents are a repository of a vast quantity of data about the past

progress of the enterprise, which are a must for making forecasts for the future.

Modifies data: The accounting data required for managerial decisions is properly compiled and

classified. For example, purchase figures for different months may be classified to know total

purchases made during each period product-wise, supplier-wise and territory-wise.

Analyses and interprets data: The accounting data is analyzed meaningfully for effective

planning and decision-making. For this purpose the data is presented in a comparative form.

Ratios are calculated and likely trends are projected.

Serves as a means of communicating: Management accounting provides a means of

communicating management plans upward, downward and outward through the organization.

Initially, it means identifying the feasibility and consistency of the various segments of the plan.

At later stages it keeps all parties informed about the plans that have been agreed upon and their

roles in these plans.

Facilitates control: Management accounting helps in translating given objectives and strategy

into specified goals for attainment by a specified time and secures effective accomplishment of

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these goals in an efficient manner. All this is made possible through budgetary control and

standard costing which is an integral part of management accounting.

Uses also qualitative information: Management accounting does not restrict itself to financial

data for helping the management in decision making but also uses such information which may

not be capable of being measured in monetary terms. Such information may be collected form

special surveys, statistical compilations, engineering records, etc (Sharma & Gupta, 1996).

2.6 Limitations of Management Accounting

Management accounting, being comparatively a new discipline, suffers from certain limitations,

which limit its effectiveness. These limitations are as follows:

Limitations of basic records: Management accounting derives its information from financial

accounting, cost accounting and other records. The strength and weakness of the management

accounting, therefore, depends upon the strength and weakness of these basic records. In other

words, their limitations are also the limitations of management accounting.

Persistent efforts. The conclusions drawn by the management accountant are not executed

automatically. He has to convince people at all levels. In other words, he must be an efficient

salesman in selling his ideas.

Management accounting is only a tool: Management accounting cannot replace the

management. Management accountant is only an adviser to the management. The decision

regarding implementing of advice is to be taken by the management. There is always a

temptation to take an easy course of arriving at decision by intuition rather than going by the

advice of the management accountant.

Wide scope: Management accounting has a very wide scope incorporating many disciplines. It

considers both monetary as well as non-monetary factors. This all brings inexactness and

subjectivity in the conclusions obtained through it.

Top-heavy structure: The installation of management accounting system requires heavy costs

on account of an elaborate organization and numerous rules and regulations. It can, therefore, be

adopted only by big concerns.

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Opposition to change: Management accounting demands a break away from traditional

accounting practices. It calls for a rearrangement of the personnel and their activities, which is

generally not like by the people involved.

Evolutionary stage: Management accounting is still in its initial stage. It has, therefore, the

same impediments as a new discipline will have, e.g., fluidity of concepts, raw techniques and

imperfect analytical tools. This all creates doubt about the very utility of management accounting

(Decoster & Schafer, 1979).

2.7 Management Accounting and Financial Accounting

Financial accounting and management accounting are closely interrelated since management

accounting is to a large extent rearrangement of the data provided by financial accounting.

Moreover, all accounting is financial in the sense that all accounting systems are in monetary

terms and management is responsible for the contents of the financial accounting statements. In

spite of such a close relationship between the two, there are certain fundamental differences.

These differences can be laid down as follows:

Objectives: Financial accounting is designed to supply information in the form of profit and loss

account and balance sheet to external parties like shareholders, creditors, banks, investors and

Government. Information is supplied periodically and is usually of such type in which

management is not much interested. Management Accounting is designed principally for

providing accounting information for internal use of the management. Thus, financial accounting

is primarily an external reporting process while management accounting is primarily an internal

reporting process.

Analyzing performance: Financial accounting portrays the position of business as a whole. The

financial statements like income statement and balance sheet report on overall performance or

statues of the business. On the other hand, management accounting directs its attention to the

various divisions, departments of the business and

reports about the profitability, performance, etc., of each of them. Financial accounting deals

with the aggregates and, therefore, cannot reveal what part of the management action is going

wrong and why. Management accounting provides detailed analytical data for these purposes.

11

Data used: Financial accounting is concerned with the monetary record of past events. It is a

post-mortem analysis of past activity and, therefore, out the date for management action.

Management accounting is accounting for future and, therefore, it supplies data both for present

and future duly analyzed in detail in the 'management language' so that it becomes a base for

management action.

Monetary measurement: In financial accounting only such economic events find place, which

can be described in money. However, the management is equally interested in non-monetary

economic events, viz., technical innovations, personnel in the organization, changes in the value

of money, etc. These events affect management's decision and, therefore, management

accounting cannot afford to ignore them. For example, change in the value of money may not

find a place in financial accounting on account of "going concern concept". But while affecting

an insurance policy on an asset or providing for replacement of an asset, the management will

have to take into account this factor.

Periodicity of reporting: The period of reporting is much longer in financial accounting as

compared to management accounting. The Income Statement and the Balance Sheet are usually

prepared yearly or in some cases half-yearly. Management requires information at frequent

intervals and, therefore, financial accounting fails to cater to the needs of the management. In

management accounting there is more emphasis on furnishing information quickly and at

comparatively short intervals as per the requirements of the management.

Precision: There is less emphasis on precision in case of management accounting as compared

to financial accounting since the information is meant for internal consumption.

Nature: Financial accounting is more objective while management accounting is more

subjective. This is because management accounting is fundamentally based on judgement rather

than on measurement.

Legal compulsion: Financial accounting has more or less become compulsory for every

business on account of the legal provisions of one or the other Act. However, a business is free to

install or not to install system of management accounting.

The above points of difference between Financial Accounting and Management Accounting

prove that Management Accounting has flexible approach as compared to rigid approach in the

case of Financial Accounting. In brief, financial accounting simply shows how the business has

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moved in the past while management accounting shows how the business has to move in the

future. An attempt may now be made to compare and study the two types of accounting on basis

of the characteristics of the data used.

2.8 Stewardship, Treasurership and controllership function

2.8.1 Stewardship function

Stewardship accounting, in a sense, is associated with the need of business owners to keep

records of their transactions, the property and tools they owned, debts they owed, and the debts

others owed them. Stewardship function is a traditional approach of accounting that places an

obligation on stewards or agents such as directors, to provide relevant and reliable financial

information relating to resources over which they have control but which are owned by others,

such as shareholders (Bajracharya, Ojha, Goet, Sharma, & Gautam, 2010).

2.8.2 Treasurership function

Treasurership is a financial manager or the custodian arid manager of all the cash and near-cash resources

of the firm. The treasurer handles credit reviews and sets policy for collecting receivables

debtors of the firm to whom the firm has sold goods or services) and also handles relationships

with banks and other lending or financial institutions (Bull, 1969). It consists of major activities

like financing, planning, dealing with capital and money markets, investment decision, cash

management, credit management, and so on. Value maximization of organization is a prime

objective. (Bajracharya, Ojha, Goet, Sharma, & Gautam, 2010).

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2.8.3 Controllership function

Controller- the other name for Chief Accountant- is usually the head of the whole area of

accounting, including internal audit (Bull, 1969). It consists of major activities including

financial record keeping and reporting, internal auditing, tax planning, cost accounting,

managerial accounting, profit planning and accounting information system and so on. Controller

often interprets accounting information for line managers and serves as a consultant when

decision and plans are made.

(www.maaw.info, 2013)

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2.9 Management Accounting in Nepal

The history of management accounting in Nepal by the government is very old, written records

to accounting have been tracked back after 18th centuries in Nepal after unification of nation in

1768 (1825 B.S) by Prithivi Narayan Shah the Great, the Chief of district level soldiers used to

keep the accounts of government offices. In 2008, a week practices of managerial accounting

began in Nepal through the implementation of budgetary system, which was a tool of managerial

accounting techniques to plan revenue and control expenditure.

Management accounting is a new things and it is still in a developing stage in the context of

Nepal. The decisions that take place are usually based on intuitions of the strategies managers. It

can be said that the role of managerial accounting is yet to be recognized by Nepalese

corporation. Managerial accounting is a new things and it is still in a developing stage in the

context of Nepal. The decisions that take place are usually based on intuition or behavior of

strategic manager. It can be said that the role of managerial accounting is yet to be recognized by

Nepalese corporations. However, recently, with the country’s entry into the WTO, the functions

and importance of managerial accounting has been realized by the business people and

companies in Nepal too. Thus, there is plenty of scope for managerial accounting to be practiced

by the Nepalese companies and it has almost become mandatory to understand and use the same

so as to grow and sustain itself in today’s rapidly changing and competitive global market.

(Bajracharya p. 2010)

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Chapter III

3.1 Summary and Conclusion

Management accounting is concerned with the provisions and use of accounting information to

managers within organizations, to provide them with the basis in making informed businessdecis

ions that would allow them to be better equipped in their management and control functions.

Unlike financial accounting information, management accounting information is used within an

organization “typically for decision-making” and is usually confidential and its access available

only to a few selected users.

Managerial accounting concept has emerged to resolve the complexity that has appeared in

today’s business decision making process. It’s main aim to simplify the planning, and decision

making process and to provide support to achieve better organizational outcomes. It is for every

level of management because every manager has to be involved in some sort of decision-making

process. Management accounting and financial accounting can be differentiated on the ground of

their uses, principle, statutory obligation, presentation of reports and information, center of

focus, methodology etc. Cost accounting simply aims to measure the performance of

department’s goods and services; however, managerial accounting is much more than

comprehensive than it.

 Management Accountants have far advanced from their tradition role of preparation of financial

and non-financial statements. The management accountants are now members of management

itself which take part in decisions making. The managerial account information should be

relevant, accurate, and timely and cost effective. The management accounting is the young

discipline. It should adopt many changes and new technology changes in the field of accounting.

Several changes where pertinent to management accounting are e-business, emergence of new

industries, global competitions, focus on customer, communication and information technology,

Just-in-time system reduces the response time, simplify the design of both product and process,

improves quality and customer services etc.

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Bibliography

Bajracharya, P., Ojha, K. P., Goet, J., Sharma, S., & Gautam, C. M. (2010). Managerial Accounting: Nepalese Perspective (Second ed.). Kathmandu: Asmita Books Publishers and Distributors (P) Ltd.

Bull, R. J. (1969). Accounting in Business . London: Butterworths Publication.

Decoster, D. T., & Schafer, E. L. (1979). New York: John Willey and Sons.

Malik, D. N. (2009). Management Accounting. 7-8.

Sharma, R. K., & Gupta, S. K. (1996). New Delhi: Kalyani Publishers.

www.articlesbase.com. (2013, January 20). Retrieved from http://www.articlesbase.com/college-and-university-articles/objectives-for-writing-an-effective-research-paper-4523603.html

www.civil.pdn.ac.lk. (2103, January 21). Retrieved from

www.civil.pdn.ac.lk/managementaccounting/lecturenotes

www.maaw.info. (2013, January 21). Retrieved from http://maaw.info/ControllershipTreasurership.htm

www.mia.org. (2013, January 21). Retrieved from http://www.mia.org.my/handbook/guide/IMAP/imap_1.htm

www.rentcalculators.org. (2013, January 21). Retrieved from

www.rentcalculators.org/tiforwryotep.html

www.ucc.vt.edu. (2013, January 21). Retrieved from http://www.ucc.vt.edu/stdysk/termpapr.html

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