- Is Management Accounting?
- Is Management Accounting?
Management accounting is the process of measuring, analysing, identifying, communicating and interpreting financial information for the pursuit of an organisation’s goals. In contrast to financial accounting, management accounting provides helpful information and reports to internal users such as entrepreneurs in the hope that they can plan and control their businesses activities.
Main areas in which management accounting is used are:
- Planning and budgeting – Management accounting techniques are used in order to plan what to sell and what price is to be charged in order to gain profit. Ensuring that a plan is in place on how to finance the operations and how to manage cash.
- Decision making – Management accounting is needed when managers have to decide whether or not to start a project; as it estimates the benefits of various opportunities and makes a final decision on which one to choose.
- Measurement of Performance – Manager’s must compare the results of operations to evaluate the performance of the business. Management accounting techniques such as standard costing, in order to evaluate performance.
Management Accounting Topics
Other account management topics can be more beneficial for controlling and planning a business, they also help management make crucial financial decisions.
These topics include:
- Understanding cost-volume-profit analysis and cost behaviour.
- Capital budgeting and operational budgeting.
- Standard costing and variance analysis
- activity based costing.
- Pricing of individual products and services.
- Analysing the profitability of customer’s product, lines, territories, etc.
Advantages of Account Management
Reduces expenses – Management accounting can help businesses lower their expenses; business owners often use management accounting information to review the cost of resources. This allows owners to have a better understanding on how much money it costs to run the business. They can also use management accounting to analyse the quality of resources used to produce goods or services.
Improve cash flow – Budgets are a huge part of management accounting. Business owners often use budgets so they have a financial idea for future business expenditures. Many budgets are based on a company’s historical financial information. Management accountants will use this information and create a main budget for the entire company. Larger businesses may use several smaller budgets for different departments.
Business decisions – Management accounting improves the business owner in making decisions. Business owners can use management accounting information as a decision-making tool Rather than making business decisions based solely on qualitative analysis. Business owners can review each opportunity through the prism of quantitative analysis to assure they have a clear understanding relating to business decisions.