Management accounting is assigned the functions of
classifying presenting and interpreting data in such a way that it helps
management in controlling and running the enterprise in an efficient and
economical manner. Some of the functions
of management accounting are given as follows
- Planning and Forecasting: One of the important functions of the management accounting is to help management n planning for short-term and long term periods and also in making forecasts for the future. Management accountants use various techniques such as budgeting, standard costing, marginal costing, fund flow statements, probability and trend ratios, etc. for fixing targets. These techniques are useful in planning various activities. So management accounting tools are useful in planning and forecasting.
- Modifications of Data: Management accounting helps in modifying accounting data. The information is modified in such a way that it becomes useful for the management. If sales data is required, it can be classified according to product, area, season-wise, type of customers and time taken for getting payments, etc.
- Financial Analysis and Interpretation: Management accountant undertakes the job of presenting financial data in a simplified way. Financial data is generally collected and presented in a technical way. Top managerial executives may lack technical knowledge. Management accountant analyses and interprets financial data in a simple way and presents it in a non-technical language. He gives facts and figures about various alternative courses of action so that it becomes easy for the management to take a decision.
- Facilitates Managerial Control: Management accounting is very useful in controlling performance. All accounting efforts are directed towards control of the enterprise. Performance evaluation is possible through standard costing and budgetary control which are an integral part of management accounting.
- Communication: Management accounting establishes communication within the organization and with the outside world. The management accountant prepares reports for the benefit of different levels of management and employees. The activities of the concern are communicated to outsiders such as bankers, investors, creditors, government agencies, etc. The filing of various tax returns is also entrusted to the accountant.
- Use of Qualitative Information: The field of management accounting is not restricted to the use of monetary data only. It collects and uses qualitative information also. While preparing a production budget, management accountant may not only use past production figures, productivity reports, consumer surveys and many other business documents. The use of qualitative information is as helpful as monetary information. Management can assess various aspects of a plan before finalizing it.
- Coordinating: The coordination among different departments is essential for smooth running of the concern. Management accountant acts as a coordinator among different financial departments through budgeting and financial reports.
- Helpful in taking Strategic Decisions: Management accounting helps in taking strategic decisions. It supplies analytical information regarding various alternatives and the choice of management is made easy. These decisions may be regarding seasonal or temporary stoppage of production, replacement decisions, expansion or diversification of works and a correct decision is taken.
- Supplying Information to Various Levels of Management: Every management level needs accounting information for decisions making and policy execution. Top management takes broader decisions and leaves day-to-day decisions for the lower levels of management. Management accountant feeds information to different levels of management so that further decisions are taken. The supply of adequate information at the proper time will increase efficiency of the management.
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