Management Accounting

Hello friend,thank you for visiting my blog. I have written this blog on Management Accounting. Hope this blog will be helpful to you.. This blog  will  be  helpful to students, academicians, professionals and all other persons who are in the field of Management Accounting. 

Well if you ask me the age of accounting I will tell you that it is as old as money itself. It is the language of business. The role of accounting has been changing with economic and social developments. Over the years new dimensions have been added to the discipline of accounting.

Here I would like to tell you that accounting has several branches which are as follows:

• Financial Accounting
• Cost Accounting and
• Management Accounting

In this blog I will only discuss about the management accounting. Management accounting provides information to the management for the internal management of the business concern.

Today's complexities of business environments have necessitated the use of management accounting for planning, coordinating  and controlling the functions of management.

Management accounting has two words 'management' and 'accounting'. So these two words says that it is the study of managerial aspects of accounting. The study of management accounting is to redesign accounting in such way that it is helpful to the management in formation of policy and carrying out the function of business more efficiently.

Now you must have understood the meaning of management accounting. Now I will discuss some characteristics of management accounting.

- Management accounting is based on accounting information. These information are presented in such a way that it suits the managerial needs. Management accounting is a service function and it provides useful information to the different level of management.

- Cause and effect relationship is studied in management accounting. If there is a loss in the business then the reason for this is probed and if there is profit the factors influencing the profitability is also discussed. Profits are compared to sales, different expenditures, current assets, share capital etc.

- In management accounting different techniques are used to help in taking decisions by the management. There are some techniques like financial planning and analysis, standard costing, budgetary control, marginal costing , project appraisal, control accounting etc. are used to manage the business effectively.

Now I will discuss about some functions of management accounting

• Planning and forecasting

Planning and forecasting is quite essential for the effective management of the business. Various techniques such as budgeting, standard costing, funds flow statement, probability and trend, ratios are used for fixing the targets. These techniques are also used for planning  of various activities.  I will discuss these techniques elaborately in my next blogs.

• Modification of data

Here management accountants classifies and modifies the accounting data according to the requirements of the management.

• Financial analysis and interpretation

I would like to tell you that this function is very important for the management accountants. Here management accountants analyzes and interprets the financial data in a simple way and presents it in a non technical language so that it can be easily understandable by the managerial executives who have no technical knowledge.

• Facilitates managerial control

Management accountants setup the standards of departments and individuals. Actual performances of the departments and individuals are recorded and deviations are calculated. This function enables the management to assess the performance of everyone in the business organization. Techniques of standard costing and budgetary control can be used for  performance evaluation.

• Communication

Management accountants prepare different financial reports for the uses of different levels of management and employees. These reports communicate within the organization and with the outsiders like bankers, investors, creditors, government agencies etc.

• Qualitative information

Management accountants do not concentrate on financial data only, they also collects and uses qualitative information.  Here I am giving you an example a management accountant while preparing production budget rely on the assessment of persons dealing with production, productivity, reports, consumer surveys etc.

• coordinating

As you know coordination between different departments is very essential for the smooth running of the business . Management accountants act as a coordinator among different financial departments through budgeting and financial reports.

• Helpful in taking strategic decisions

Management accounting is very helpful for decisions for seasonal or temporary stoppage of production, replacement decisions, expansion or diversification of works etc.

Let me to wind up this post. In the next post I will discuss about financial reports of  business concerns.