Management accounting, also called managerial accounting or cost accounting, is the process of analyzing business costs and operations to prepare internal financial report, records, and account to aid managers’ decision making process in achieving business goals. In other words, it is the act of making sense of financial and costing data and translating that data into useful information for management and officers within an organization.
Management accountants (also called managerial accountants) look at the events that happen in and around a business while considering the needs of the business. From this, data and estimates emerge. Cost accounting is the process of translating these estimates and data into knowledge that will ultimately be used to guide decision-making.
The main difference between financial and managerial accounting is whether there is an internal or external focus. Financial accounting focuses on creating and evaluating financial statements that will be reported externally, like creditors and investors. In contrast, managerial accounting analyses and results are kept in-house for business leaders to use to drive decision-making and run the company more effectively. Managerial accountants handle many facets of accounting. These include margins, constraints, capital budgeting, trends and forecasting, valuation and product costing.
Let’s look at an example.
Anderson is the CEO of a small consulting firm. He wants to hire a management accountant and a financial accountant. He has come up with a list of job tasks and he needs to break them up into those that should be performed by the managerial accountant and those that should be performed by the financial accountant. Here is the list of tasks that Anderson has come up with:
- Preparing cash flow statements
- Income statement reporting
- Calculating changes in stockholder equity
- Preparing taxes for the organization
In this example, the only tasks that would be assigned to the management accountant are budgeting and taxes. The financial accountant would handle the other tasks.
Importance of Accounting in parts of Business
Importance of Accounting in Planning
Proper planning is very much needed for successful completion of various management activities.
This planning’s cash planning, sales planning, procurement planning, determining the quantity of stock, development planning, fixing up target-profit etc. are very much dependent on accounting data and information.
Accounting Importance in Organization
Accounting plays a very vital role in the proper execution of the important functions of management organization.
Accounting helps management-organization by providing information like percentage of profit over the capital, capital investment position, management efficiency in controlling etc.
Accounting Importance for Motivation
Labor-employees are to be motivated for achieving expected performance. Financial reward is one of the main motivating factors of work.
The management is to be aware of the financial position of the business for providing financial benefits. Accounting helps the management by providing necessary information for taking proper decisions.
Accounting Importance for Co-ordination
One of the main functions of management is to achieve the final target of the business by coordinating various activities of different departments. Accounting helps in coordinating various activities of different departments of the business.
It also helps the management in the adjustment of purchase with sales, an expenditure with income, sales with debt receivable realization etc. to a great extent.
Accounting Importance in Control
The main functions of the modem management are planning and controlling. Controlling is essential for completion of activities according to plan. Accounting can help management much in control.
Accounting Importance Media of Communication
Accounting plays a vital role as a media in communicating various information from different departments, business, and management plan of actions to various departments.
For instance, in the modem age; Accounting is regarded as the best media of communication in supplying information to management regarding purchase and stock, time of purchase, cost of purchase and sales price etc.
Besides, the function of Accounting is to collect and provide information about the business to various interested parties.
Accounting Importance in Budgeting
Preparation of various budgets is essential to run the business successfully. The historical information which is needed in preparation of the budget is supplied by Accounting.
Accounting Importance in Professional Advice
An efficient and honest accountant helps the management with valuable professional advice for the development of its business. In the modem age with the complexities of business management has also become complex.
In this aspect, the role of accounting is very important. The efficiency of management depends on the efficient use of accounting data and information. In the developed countries accountants are regarded as efficient and successful managers.
In the modem age, in big organizations accountants are included in the management committee. It can be said that Accounting and Management are interdependent. Accounting is an essential tool of management.
Management is universal
It is required at every step of an organization. And accounting information is very required for the management. Accounting aids management in planning, organization, motivation, coordination control, budgeting.
Accounting delivers the financial and economic information that an organization managing process is needed. Management is the internal use of the accounting information.
It this competitive business world management has to be swift and dexterous in its decision making.
Accounting gives the information that enables the management to make the important decisions for the business. Accounting is an important tool for the management as it’s regarded as the “Language of Business”.