Management Accounting Introduction - Accounting Basics

What is Management Accounting?

Management Accounting facilitates a business to conduct more efficiently. The methods and concepts required for effective planning, and control through evaluation and interpretation of performance is included by Management Accounting.

What are the characteristics of Management Accounting?

The data is provided to the management by management accounting using which decisions are taken by the management for achieving the organizational goals and improving the efficiency. Some of the characteristics of Management Accounting are:

To Provide Accounting Information

Financial accounting department collects and classifies the information and is presented in the manner which suits the managerial needs for reviewing different policy decisions of the organization.

Cause and Effect Analysis

In addition to financial accounting, management accounting identifies the reason for the profit and loss of the organization. The causes for the loss is identified and he factors influencing the profits are studied. And hence cause and effect is considered as a feature of management accounting.

Special Technique and Concepts

Some of the main techniques used in financial accounting are Budgetary control, marginal costing, standard costing which facilitate in successful financial planning and analysis thus making the financial data useful.

Decision Making

Management accounting facilitates in studying the alternative decisions, the impact of the financial data on the future is studied, useful data is supplied to the management.

Achieving Tasks

The targets are set by the company by using the financial data. The deviations in the actual and the targeted tasks are corrected by taking corrective measures which is done by management accounting by using standard costing and budgetary control.

No Fixed Norms

While applying the tools of management accounting, there are no fixed norms but financial accounting completely depends on certain rules and principles. Hence the presentation and analysis of the accounting data vary from company to company.

Increasing Efficiency

The efficient and inefficient sections of the organization are identified by the management accounting and thus corrective steps are taken to rectify the inefficient part for increasing the performance. Hence accounting information helps in increasing the efficiency.

Informative Instead of Decision Making

The management account provides the information in a manner used for decision making. Decisions are taken by the top management and not by the accountant.

Forecasting

The management is facilitated by the management accounting for future planning and forecasting.

What are the objectives of Management Accounting?

The following are some of the objectives of Management Accounting:

Planning and Formulating Policies

Necessary and relevant information is provided by management accounting for planning and formulating policies. Regression analysis and time series analysis are used by management accounting as forecasting techniques.

Controlling Performance

Some of the techniques such as budgetary control, standard costing, management audit are used for ensuring effective control. Management is provided with a proper managerial control system. A report on effective and efficient use of resources is provided to the management.

Interpreting Financial Statement

The key role of management accounting is collecting accounting data and analyzing the same. Management accounting provides relevant information in a systematic way that can be used by the management in planning and decision-making. The accounting data is interpreted and analyzed by some of the tools of management accounting such as Cash flow, fund flow, ratio analysis, trend analysis, and comparative financial statements.

Motivating Employees

The best alternative methods of doing things are provided by management accounting. The employees are motivated to improve their performance by initiating incentive schemes.

Making Decisions

Accurate decision-making leads to the success of any organization and effective decision-making is based on the informational network provided by management accounting.

Reporting to Management

The information about the latest position of the company is provided by the management accounting to the management. The information provided may be either regarding performance of the departments, which enables to take timely decisions. In order to overcome the existing financial or other problems the management accountant provides the required information.

Coordinating among Departments

By applying financial budgeting and providing the reports of the same to the management on a regular basis, management accounting helps in coordinating with other departments.

Administrating Tax

The tax structure is increasing complexity and management is provided proper guidance from management accountant in order to comply with the tax laws.

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