Management Accounting

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Definition

The application of professional knowledge and skill in the preparation and presentation of accounting information in such a way as to assist management in the formulation of policies and in the planning and control of operations of the undertaking.

Explanation

Management accounting uses both financial and cost information to advise management in planning and controlling the organization. It provides information to persons inside the organization. Management accountants design specific purpose reports to serve the needs of decision makers. Past and current activities are reported to the extent that such information helps management to plan for the future.

Functions of management

The functions of management are stated below:

  1. Laying down and classifying the objectives to be achieved.
  2. Defining policies to be pursued for achieving the objective(s).
  3. Prescribing strategies to be followed.
  4. Planning business operations keeping in view the objective, the policies and the strategies.
  5. Coordination of all activities so as to avoid bottlenecks. e.g., machinery and equipment in the various production departments should be well balanced.
  6. Execution of the production, sales etc., plans so that the objective of the organization is achieved.
  7. Control over actual performance. This control is achieved by comparing actual performance with plans, measuring departures from the plan, ascertaining causes which have given rise to the departments (variances) and taking suitable corrective actions in order to eliminate weaknesses noted. Daily, weekly or monthly control is also achieved by issuance of suitable instructions and guiding subordinates in all matters necessitating such approaches.
  8. Revision of plans, policies and strategies if situation so warrants.
  9. Long-term planning say for the next five years so that major executives should be well aware of the long-term directions to which the business activities are to be carried.
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