Since the primary concern of a business unit is to garner maximum profit with minimal cost, hence it is required that a firm remains updated about its financial details 24×7. Management Accounting is a tool via which a company remains updated of its costs be it initial raw materials or monetary amount spent on the whole. It is on basis of this that a company can bring in corrective measures and carry on with its trade activities.
Its functions:
- Helps in decision making: This is the most important function of a management accounting tool. It provides a detailed analysis of the financial statement and shows alternative information of revenues and associated costs. It is the analysis of presented data that helps in providing correct information based on which business decisions can be undertaken.
- Interprets financial statement in a correct manner: This is a tool that is associated with interpreting and analysing a financial statement which is to be further presented to investors, customers and other external clients. What is important is that clarity can be obtained with this method.
- Planning future policies: The manner in which this is used for presenting detailed financial conditions of a company, based on this future policy can be planned by a particular company. Since, this provides a statement regarding costs and profit rates, so a company can estimate and assess its present scenario and determine investments in that regard.
- Helps in controlling and organisation: While dealing with a production process there are a number of details that needs to be taken into account. Starting from marginal costs, to standard costing, cash inflow, fund flow all these aspects are to be understood in detail.
When a company checks its management accounting results only then they can estimate their present scenario. So, an organisation can be controlled in that regard.
- Brings in coordination: The most important aspect of this tool is bringing in coordination in the organisation based on which it can carry on its daily activities. Only such a financial account can help in that.
- Effectively communicate information: For a business unit to get success, it is important that both its employees and owners are aware of details that would enhance profitability of a company. With this tool, this communication of information is done in the best manner.
These are some of the most important functions of management accounting.
Links of Previous Main Topic:-
- Introduction to accounting and branches of accounting
- Preparation of final accounts
- Introduction of fund flow statement
- Introduction cash flow statement
- Ratio analysis significance of ratio analysis
- Fixed assets and depreciation meaning causes objectives methods and basic factor
- Cost accounting concept objectives advantages limitations general principles and cost sheet
- Job costing
- Introduction process costing
- Activity based costing introduction concept and classification
- Introduction inventory pricing and valuation
- Standard costing introduction
- Management accounting
Links of Next Finance Topics:-
- Limitations of management accounting
- Differences between financial accounting and management accounting
- Differences between financial accounting and cost accounting
- Differences between cost accounting and management accounting
- Test questions management accounting
- Marginal costing
- Relevant cost for decision making
- Budget and budgetary control
- Limitations of historical accounting
- Introduction to responsibility accounting
- Introduction to financial management
- Introduction and types of dividend
- Concept of cost of capital
- Capitalization meaning
- Concepts of working capital
