What are the Principles of management accounting?

1. The procedures and methods to be followed for keeping and analyzing financial statements should have consistency. It enables to keep the figures comparable. If the methods are frequently charged then utility of the statements will be reduced.

2. The principles should be such that all possible looses should be taken into account. On the other hand profits should be considered only when they have actually accrued.

3. Only normal costs should be considered while finding out costs of the products. The cost of the products of the should reflect costs under normal situation. Abnormal cost may arise due to obsolescence or idle capacity due to less demand.

4. The convention of the objectivity should be followed while recording financial statements. There should be no room for human bias or prejudice. There should not be a left to the accountant while making records.

5. Measuring rod of efficiency is a concern should be a return on capital employed. It should be consistently used so that a comparison is possible so in the figures of different years. A comparison in performance is possible not only among equally size concerns but also among different size concerns.

6. Standard forms should be used for recording cost data. It will enable a comparison of costs among different units.

7. The costs should be divided into controllable and uncontrollable costs. Controllable costs are those which can be kept under control by the efforts of the management. Uncontrollable costs are affected by the outside reasons such as increase in price of materials upward revision of labour rates by the government etc. and increase in controllable costs will enable the management to fix reasonability and take corrective measures.

8. The aim of management should be to utilize resources of the concern in the best possible way. The use of various processes and methods should enable the achievement of that object.

9. The principle of revaluation accounting should be used to keep the data up to date. Due to inflationary situation various assets are not shown at real values. Revaluation accounting is not yet widely used because it affects objectivity of accounts.