Management Accounting – Definition, Objectives and Tools used

Management Accounting Introduction:

Management Accounting is the accounting technique helpful to the management in discharging its functions. In other words, it provides the accounting information which is useful for planning, directing and controlling the activities of an organization. It rearranges the accounting information provided by the financial accounts in such a manner to suit the diverse requirements of the modern management. In brief, it provides the information in a suitable form to the management for exercising its functions effectively. It includes all sorts of accounting analysis, costing and statistical and graphical techniques.

Management Accounting - Definition, Objectives and Tools Used subramoneyplanning.blogspot.com

Definition of Management Accounting:

According to American Accounting Association, “Management Accounting includes the methods and concepts necessary for effective planning, for choosing among alternative business actions and for control through the evaluation and interpretation of performance”.

The Management Accounting Team of Anglo-American Council on Productivity defined Management Accounting as “the presentation of accounting information in such a way as to assist management in the creation of policy and in the day to day operation of an undertaking”. As per this definition, management accounting lies between the following two activities:

i)     Compiling the accounting results on the one hand and

ii)   Controlling the business by the management on the other hand.

From the above, it is clear that management accounting covers all rearrangement, combination or adjustment of the orthodox accounting figures which may be required by the managing director to control the business.

Objectives of Management Accounting:

The basic objective of management accounting is to help the management to carryout its functions efficiently. The other objectives are as follows:

        1)      To compile plans and budgets covering all aspects of the business.

        2)      To allocate the responsibilities for the implementation of plans and budgets systematically.

        3)      To organize for providing opportunities and facilities for performing responsibilities.

        4)      To analyze all transactions to facilitate comparison between expected and actual results.

        5)      To present to the management up-to date information at frequent intervals.

Tools of Management Accounting:

The following tools or techniques are used in management accounting:

        1)      Financial Statement Analysis

        2)      Standard Costing

        3)      Budgetary Control

        4)      Marginal Costing

        5)      Cash Flow and Fund Flow Statements

        6)      Mathematical and statistical models

        7)      Management Reporting

To know more about Scope & Functions of Management Accounting, you can have a visit @ https://subramoneyplanning.blogspot.com/2019/11/scope-and-functions-of-management-accounting.html

To know more about Advantages and Disadvantages of Management Accounting, please do visit @ https://subramoneyplanning.blogspot.com/2020/08/advantages-and-disadvantages-of-management-accounting.html

Categories: Management Accounting, Management Lessons, Tutorials