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”.
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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.
