Advantages and Disadvantages of Management Accounting

Management Accounting provides the accounting information which is useful for planning, directing and controlling the activities (covering major principles of management) of an organization. J. Batty defines Management Accounting as “the term used to describe the accounting methods, systems and techniques which coupled with special knowledge and ability, assist management in its task of maximizing profits or minimizing losses”.

To know more about Definition, Objectives & Tools of Management Accounting, you can have a visit @  https://subramoneyplanning.blogspot.com/2019/10/management-accounting-definition-objectives-tools-used.html

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

We know that everything has it’s own merits (uses) and demerits (limitations) , so let’s take a overview of the Advantages and Disadvantages of Management Accounting

Advantages of Management Accounting

The advantages of management accounting can be seen in the following:

1)      Systematic Operation: With the help of management accounting, the business activities are planned effectively. This will avoid over working in busy periods and slackness In slump periods.

2)      Profit Maximization: It enables the business to get maximum return on capital by helping it in planning, controlling and coordinating the activities.

3)      Better Relationship with workers: It helps to improve the relationship between the management and the workers and motivate them to achieve the goals of the enterprise. It ensures high degree of morale in the organization.

4)      Better Customer Services: By comparing the results with the standards continuously, it helps the management to improve its services to the customers.

5)      Communication of Information: The management accounting provides information not only to the management but also to outsiders. It helps the management in communicating progress, financial position etc., of the enterprise to the creditors, investors and shareholders etc.,

Disadvantages of Management Accounting

1)      Dependence on basic records: The management accounting depends mainly on cost and financial accounts for deriving the information. Therefore, the strength and weakness of management accounting depends upon the weakness of these accounts.

2)      Continuous effort: The conclusions drawn from management accounting will not readily be accepted. Therefore, the management accountant must take continuous efforts to convince the people at all levels to accept his ideas.

3)      Tool of Management: The management accounting is a tool of management. Therefore, it cannot replace the management and administration. The management accountant can give his advice but the decision regarding the implementation of his advice will be taken only by the management.

4)      Costly system: The installation of management accounting system is costly since it requires elaborate organization. Therefore, it can be adopted only by big business concerns.

5)      Wide area of operation: The scope of management accounting is very wide since it takes into account both monetary and non-monetary factors. Therefore, the conclusions derived by it will not be more accurate.

6)      Change in accounting practices: The management accounting requires change in traditional accounting practices. Such a change can be made only by rearrangement of personnel and their activities which is generally opposed by the people concerned.

Thus, these are the advantages (Merits) and disadvantages (Limitations / Demerits) of Management Accounting for implementing to maximize profit and control cost and loss.

Categories: Management Accounting, Management Lessons, Tutorials