Management accounting is a field of accounting that analyzes and provides cost information to the internal management for the purposes of planning, controlling and decision making. Management accounting refers to accounting information developed for managers within an organization.
Management Accounting is the process of analysis, interpretation and presentation of accounting information collected with the help of financial accounting and cost accounting, in order to assist management in the process of decision making, creation of policy and day to day operation of an organization. Thus, it is clear from the above that the management accounting is based on financial accounting and cost accounting.
CIMA (Chartered Institute of Management Accountants) defines Management accounting as “Management Accounting is the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of information that used by management to plan, evaluate, and control within an entity and to assure appropriate use of an accountability for its resources”. This is the phase of accounting concerned with providing information to managers for use in planning and controlling operations and in decision making.
Objectives of Management Accounting:
1) Planning: The success of any business depends upon the proper planning. Planning also involves foreseeing the problem of arranging adequate funds or resources to implement the various plans. It can render valuable information as to what should be the cheapest source in terms of cost involved.
2) Organizing: By following various techniques of it, each department of the organization can be examined separately. It helps the management in performing this function by assigning specific responsibilities to different people.
3) Controlling: Management Accounting helps the managements in controlling the performance of the business. The actual results are compared to plan objectives. Budgetary control, cost variance, and interpretation of financial statements are helpful in this direction.
4) Decision making: Decision-making is a
very important function of management among all the functions of the
management, It can be very helpful in this regard. Under this function, to
management finds various alternatives, which should yield maximum profit.
Marginal Costing, Break-even analysis etc. can help to the managements in this
regard.
5) Time saving: It is concerned with the
analysis and interpretation of financial statements. It selects only that
information, which is useful to managements and hence save the time of the
managements.
6) Measuring performance: Management accounting measures two types of performance. First is employee performance and the second is efficiency measurement. The actual performance is measured with the standardized performance and a report of deviation from the standard performance is reported to the management for the effective decision making and also to indicate the effectiveness of the methods in use. Both types of performance management are used to make corrective actions in order to improve performance.
7) Assess Risk: The aim of management accounting is to assess risk in
order to minimize risk.