Meaning of Management Accounting
Management accounting is a specialized branch of accounting which helps management in decision making by supplying relevant accounting information. This is an accounting branch which records various financial and statistical data and presents this data in form of reports to internal management for better decision making.
Management accounting serves the needs of management team by providing all financial and non-financial information about organization from time to time. Data collected and information acquired in management accounting is meant only for internal management use and not for outsiders.
Management accounting affects the efficiency of business as management takes decisions on basis of information provided by it. Sharing of any false information will lead to wrong decision by managers which will have adverse effects. There is no statutory compliance to practice management accounting nor there are any governing rules and principles regarding it. The outcome of management accounting is financial reports which are prepared and presented periodically to management.
Nature of Management Accounting
Provides Accounting Information
Management accounting primarily serves the purpose of supplying accounting information to the management team. It provides all relevant and true information from different sources like cost and financial accounting which helps managers in framing policies.
Technique of Selective Nature
Management accounting records and communicates only the most relevant information to managers. It selects that data and information from various sources which is more useful to management for their decision making.
Concerned with Future
It is a type of accounting that helps in deciding the future course of action. Management accounting enables managers in the forecasting of future events by providing all relevant information that is used for analysis purposes.
Cause and Effect Analysis
Management accounting properly analyses every element of balance sheet and profit and loss account. It studies the cause and effect of various facts and figures. In case there are losses then the reasons for incurring such losses are found. Management accounting studies and compares different variables influencing the amount of profit like sales, capital employed and expenditure.
No Fixed Conventions
There are no fixed norms and rules for management accounting, unlike financial accounting. Management accounting tools or techniques differ from organization to organization. It does not have any prescribed format for providing information. Management accounting supplies information to managers in a way in which it is more beneficial for them to take decisions.
Provides Data and not Decisions
Management accounting only provide information to managers but not a decision. It informs the management about various facts and figures by supplying all relevant data to them. Such data is analyzed by managers for taking various decisions.
Scope of Management Accounting
Helps in Decision Making
Assisting in better decision making is an important role in Management accounting. It supports the decision-making process of the management team by informing them about all affairs of business from time to time. The right decisions taken at the right time can improve the efficiency of the business. Management accounting helps in understanding business problems in a better way using techniques from different fields like costing, statistics, economics, etc.
Controls Management Performance
Managerial control is another important objective of management accounting. The whole organization is divided into different responsibility centers and each responsibility center is allotted some goals to be achieved.
Management accountant monitors and evaluates the performance of these responsibility centers from time to time. He is responsible to check whether operations are going as per plans and standards. In case of any deviations, he will inform management thereby helping in taking corrective measures timely.
Proper Planning and Formulation of Policies
Management accounting assists managers in making better plans and policies for the organization. It provides management of the financial reports containing all financial and statistical data about organization.
Information from various financial sources like cash flow statement, fund flow statement, capital budgeting, marginal and standard costing is presented in these financial reports. This all collectively helps managers in proper analysis and formulating of appropriate policies.
Interprets Financial Information
Management accounting interprets the financial information in a way that is well understood by management. Information collected through accounting is somehow technical and cannot be well understood easily until you have proper knowledge of accounting subjects. Management accounting derives information from various financial statements and presents it in the form of reports which contain information in non-technical and intelligible manner.
Motivation of employees is a must for the achievement of organizational goals timely. Management accountant sets goals and policies to be followed by each employee and department in an organization. It keeps a full check on the activities of employees and measures their effectiveness from time to time. In addition to measuring their performance, he also guides and supports them in improving their efficiency.
Evaluates Policies Effectiveness
Management accounting measures the overall efficiency of various policies taken by the management team. It assists and lay emphasis on Management audit. Management accounting reviews the performance and effectiveness of management policies in various departments. It finds out the deviations and communicates the same to management team.