In every business enterprise, various decisions are taken by the management on a daily basis. These decisions have impact on the operational efficiency and position of the enterprise. As they affect the operation and position of the enterprise, they need to be measured, recorded, analyzed and reported to the management, so that the management can evaluate their effect upon the enterprise.
In management accounting, managers make use of the accounting information in order to better inform themselves before they decide matters within their organizations, which aids their management and performance of control functions.
Management accounting collects and provides accounting, cost accounting, economic and statistical information to the personnel at various managerial levels to assist them in the performance of managerial functions and their evaluations. Management accounting makes use of not only accounting techniques but also of statistical and mathematical techniques. Management accounting is forward looking.
Definition of management Accounting
According to the Institute of Management Accountants (IMA): “Management accounting is a profession that involves partnering in management decision making, devising planning and performance management systems,and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy”.
According to CIMA, London: “Management Accounting is an integral part of management concerned with identifying, presenting and interpreting information used for –
(a) formulation strategy;
(b) planning and controlling activities;
(d) optimizing the use of resources;
(e) disclosure to shareholders and others external to the entity;
(f) disclosure to employees;
(g) safeguarding assets.
Objectives of Management Accounting –
The fundamental objective of management accounting is to assist the management in carrying out its duties efficiently so as to maximize profits or minimize losses of management. It includes computation of plans and budgets covering all aspects of the business.
The main objectives of management accounting are as follows –
1. To formulate planning and policy –
Planning involves forecasting on the basis of information, setting goals, framing policies determining the alternative courses of action and deciding on the program of activities.
2. Interpretation of financial documents –
It presents financial information in such a way that it is easily understood by the top management. This is achieved with the help of statistical devices like charts, diagrams, etc.
3. To assist in decision-making process –
Management accounting makes decision-making process more scientific with the help of various modern techniques. Information relating to cost, price, profit and savings for each of the available alternatives are collected and analyzed paving way for taking sound decisions.
4. To provide report –
Management accounting keeps the management fully informed about the latest position of the concern through reporting. It helps management in taking proper and quick decisions. It informs the performance of various branches/departments to the top management.
Thus, Management Accounting has the objective of collecting systematically and regularly all such information as will help management in discharging its functions of planning, control and decision-making.
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