All about Managerial or Management Accounting
Management or Managerial Accounting
In managerial accounting, the managers use the necessities of accounting information to better inform themselves before they make certain decisions within the organization, that aids their management and performance control functions.
Management Accounting is the representation of the accounting information in such a way that it helps in assisting the management in the creation of the policy and other day-to-day operations of an organization. Thus, the collected information of accounting helps in financial and cost accounting with the main motive of policy formulation, planning, control, and decision making. In other words, managerial accounting helps the management of an organization to perform various functions that include, planning, organizing, staffing, directing and controlling.
Functions and Objectives of Management Accounting
Following are the objects of Management Accounting:
- To Assist in Planning
With the help of management accounting, the management of the organization helps in assisting while planning and framing strategies by carrying out certain predictions about production, sales, inflow, and outflow of cash etc., i.e. contributing in a very wide range of activities of the organization. Not only this, but it also helps in forecasting the amount needed for carrying out alternative courses of action or expected return rate and further deciding the activities to be undertaken.
- To Assist in Organizing
By preparing correctly estimated budgets, and establishing specific cost center, management accounting helps in delivering the means to each center and allocating certain duties to guarantee proper utilization. This further helps in establishing an inter-relationship among different parts of the enterprise.
- To Coordinate
Managerial accounting helps the management of the organization to coordinate with the activities of the enterprise, initially, by formulating the functional budgets and then coordinating the whole activity by assimilating all the budgets into one under the name of “Master Budget”. In this way, proper coordination goes on in an enterprise. Besides this, “Budgetary Control”, is very important for coordination.
- To Assist in Motivating
Managerial accounting helps in increasing the efficiency of the organization. All this happens by setting goals, planning the best and economical courses of action and also by taking care of the performance of the employees. This ultimately contributes in motivating the organization as a whole.
- To Communicate
Management Accounting helps the management to communicate with the financial data of the enterprise. Management cannot take any decision and cannot assess the performance of the business without the help of financial information. All this is possible with the help of financial statements and reports which is an integral form of management accounting.
- To interpret Financial Information
It is not possible for the concerned members to know different accounting treatments until and unless they have enough knowledge of the subject, as accounting is a highly technical subject. But, with the help of management accounting, the administration leads to an interpretation of financial data, the evaluation of the alternative course of action and taking corrective decisions.
The scope of Management Accounting
The scope of managerial accounting is very wide and broad. It involves the information that is needed by the management in order to conduct a financial analysis and interpret the business operations.
Here are some of the activities that are included in the scope:
- Financial Accounting
Financial accounting provides historical information but it still contributes in planning for future and making financial predictions. Furthermore, it is very important to design a proper financial accounting system in order to obtain full control and coordination of the business operations.
- Cost Accounting
Managerial accounting helps in providing various costing techniques like marginal costing, standard costing, differential and opportunity cost analysis, etc. These techniques play a very important role in the functioning and monitoring of business actions.
- Cost Control Procedures
The cost control procedures are essential parts of the process of managerial accounting and include inventory control, cost control, labor control, budgetary control and variance analysis etc.
- Budgeting and Forecasting
There are various business aspects forecasting on which, is important for budgeting. Budgetary control helps in controlling the business activities through the operations of the budget by making a comparison of the actual with the budgeted figures.
- Tax Accounting
Tax accounting is an important part of managerial accounting and involves the preparation of income statement, determination of taxable income and filling up the return of income etc.
- Estimating the performance of the management
There are various methods and techniques provided by management accounting in order to evaluate the performance of the management. It values the performance of the management in light of the organizational objectives.