What is Management Accounting - Functions, Need
Management accounting is the type of accounting which is mainly prepared for the purpose of management to take necessary decisions like framing policy, planning and control functions of the company.
It is the combination of financial and cost accounting which helps in the analysis of the financial cost of the product and operations of an organization to take further decisions accordingly. It also helps management to take decisions regarding risk management, strategic management and performance management.
This system of accounting is to provides management very useful business accounting information and data which helps management to take necessary decisions whether the company needed to be downsized or expansion and other various decisions depending upon the activities, size and type of business.
Unlike financial accounting, management accounting is meant for the use of management in making short as well as long terms business decisions and therefore, not required to strictly follow the financial accounting rules, accounting standards, GAAP or IFRS.
Therefore, it is entirely different from financial accounting.
Management Accounting Vs Financial Accounting:
1. Management Accounts are prepared and submitted to the management for their analysis and decision making whereas the financial accounts are prepared for use by the investors, banks, financial institutes, tax authorities and other person concerned with the company.
2. Management accounts are prepared even on an approximate basis as it is submitted to the management only whereas financial accounts are prepared strictly on the basis of accounting rules and regulations, accounting standards, GAAP or IFRS as the case may be and kept for all interested in the business of the company.
3. Management accounting tells about the problems and their solution whereas financial accounting tells about the profits of the business.
4. Management accounting analysis the efficiency of various systems of operations of different divisions/departments whereas the financial accounting tells about the financial statements and not concerned with the system(s) operating in the business.
Functions of management accounting
1. Management accounting mainly focuses on the activities and profit of different activities, products, schemes of the business and helpful in taking a decision which product, service, scheme or project is making more profit and should be continued or which one is to be terminated.
2. The management accounting keeps watch on the fluctuation in the cost and profit of different products and projects and also analysis the quantum of production of a particular unit which will be more profitable for an organization.
3. The management accounting helps to decide the need for acquisition of fixed assets for running of the business and their source of finance.
4. The management accounting helps in the selection of new product keeping in view their cost, quantum of production and profitability.
Need for Management Accounting
The management accounting is very helpful in planning as it analysis the financial statements at very short intervals and therefore, keeps watch on available finance of the company and with that plans about products, projects, expansion of the business etc.
It is also very useful in taking important decisions by using various charts, forecasts and other factors prevalent in the industry. It also keeps watching whether a product is performing well or facing any problem. In case there is any problem with a product, the management takes valuable decisions to overcome it and increase the profit of the company.
It is useful in strategy making as it regularly calls for the information, it will be able to decide which product is to continue and modification of sales strategy.
CONCLUSION
Management accounting is very useful for the management in taking various important decisions because it calls for all the information, data, records (financial and costing) and analyse which product or service is more profitable for the company and should be continued and which is not and therefore should be terminated.
It also helps in deciding the quantum of production of a particular product and making a strategy for sale in order to increase the profit of the company with available resources.