What Is Management Accounting And Its Importance?
Management accounting covers all the services by which the accounting department can assist the management of the business enterprise in policy making, decision making, control and execution and valuation of effectiveness.
Accounting management provides accounting information to make sense to the different management levels that allow them to be well-informed and equip them with analytical and measurable tools. It ensures the efficient and profitable use of the monetary and non-monetary resources of the organization. It incorporates planning about what to do, how it should be done and when it should be done. It is about forecasting based on the available information, setting goals, formulating policies, determining alternative course of action and deciding on the schedule of activities to be done.
It works in the following ways;
- It serves as a vital source of information for planning.
- The accounting data required for management decisions are correctly compiled and classified.
- It is made available to the relevant accounting management of costs and other statistical data for its use in the planning and decision-making process.
- It presents the analysis and financial implication of an alternative course of action and the effects of these on the profitability of the concern.
- It provides means of communication and plans to different levels of organization. It ascertains coordination of different segments throughout the plan and helps managers in the direction of their activities.
- Real-time management accounting measures against operational plans, standards and budgets to interpret the results of operations in question of responsibility and senior management.
- Its record provides methods to evaluate the performance of management in the light of organization’s objectives.
- It facilitates management in formulation of policies and in planning and control of the operation of the company.
- It increases the efficiency of various business functions.
- It has removed the element of intuition from business decisions and extended the use of accounting services to management.
- Different management accounting tools have given validity, objectivity and reliability in business management.
- Planning, forecasting and budgeting have protected business entities from business fluctuations and different types of risks.
- Different techniques aid in controlling various transactions. The maximum use of capital and the maximum return on capital invested in the business is made possible through the application of accounting techniques.
- It causes improvement in the relationship with customers and promote the relationship of work management.
- It helps in interpreting financial information and control business performance.
- It assists management accounting in coordination of the operations and motivate the employees.
It helps in communicating up-to-date information to various stakeholders in the successful running of organization.