Management Accounting | Objectives and Importance of Management Accounting

          In my earlier articles I have discussed about the accounting and types of accounting and the difference between different types of accounting. Today in this article let us try to understand about Management Accounting and its importance.

Management Accounting

          Management Accounting is one of the branches of accounting.  The definitions of Management Accounting are

          According to J Batty “Management Accounting is the term used to describe the accounting methods system and techniques which coupled with special knowledge and ability to assist management in its task of maximizing profit or minimizing losses.”

          Accounting to Institute of Chartered Accountancy of England and Wales Management Accounting is defined as “Any form of Accounting which enables a business to be conducted more efficiently can be regarded as management accounting.”         

Management Accounting Meaning

          From the above definitions we can conclude that Management Accounting refers to the accounting systems and techniques which help management to make decisions and fulfill its goals.

Objectives of Management Accounting

          The objectives of Management Accounting are as follows,

§  Provision of Data

§  Analysis and Interpretation of Data

§  Provision of Qualitative Data

§  Facilitation of Management Control

§  Satisfaction of Information to Management

Now let us understand the objectives in detail below.

§  Provision of Data:

Management Accounting is maintained only with the intention to provide data required for management.  Management Accounting data is helpful in formulation of policies and plans for future course of action.

§  Analysis and Interpretation of Data:

Management Accounting derives its data from Financial and Cost Accounting and interprets the same. The interpreted data is helpful in effective planning and decision making for management.

§  Provision of Qualitative and Quantitative Data:

Management Accounting collects both quantitative and qualitative data. Thus provides deep insights and facilitates management so as to enable management to take decisions and planning.

§  Facilitation of Management Control:

Management Accounting techniques through standard costing, control and budgetary control helps in controlling the various activities and their outputs. Thus facilitates management control of firm or business.

§  Satisfaction of Information to Management:

Management Accounting helps to satisfy the information required for levels of management by analyzing and interpreting the financial and cost accounting based on the requirements of management and preparing the customized reports. Thus satisfies the management with information asked by management.

Importance of Management Accounting

          The importance of Management Accounting are as follows,

§  Planning

§  Organizing

§  Controlling

§  Motivating

§  Communication

§  Now let us try to understand the importance of Management accounting in detail.

§  Planning:

Management Accounting is one of the most important sources of information for the management as it reveals the cause of the challenges. Thus it helps management to solve the challenges and also design the future course of action based on various information provided by Management Accounting. Management Accounting is maintained to provide the information to management to make the decisions by management.

§  Organizing:

Management Accounting helps the management to establish the cost centers and profit centers to organize the information needed to assist management. Thus help management in structuring or organizing the data based on the requirement of management for decision making.

§  Controlling:

Management Accounting helps control various function by providing the data about the effects of a strategy or policy through the techniques of budgetary control. Thus it is helpful in effective controlling activities.

§  Motivating:

Management Accounting provides the data insights and tells the management about a policy or plans and thus motivates the management to work efficiently and achieve the objectives to reach the goals.

§  Communication:

Management Accounting is the majorly communicates about the policies and plans implemented by provides the information. Thus it is helpful in performance assessment and developing suitable policies and plans for future course of action by reporting.

Limitations of Management Accounting

          The limitations of Management Accounting are as follows,

§  Based on Financial and Cost Records

§  Costly

§  Not a Substitute for Management

§  Personnel Judgment

§  Wide Scope

Now let us understand the limitations of Management Accounting in detail.

§  Based on Financial and Cost Records:

Management Accounting is dependent on Financial Accounting and Cost Accounting data or records. Thus the accuracy of management accounting largely depends upon the accuracy of financial and cost accounting data and records.

§  Costly:

Management Accounting is costly and it can be adopted by big firms or business.

§  Not a Substitute for Management:

Management Accounting just provides the data insights about the policies and plans. It doesn’t replace the management but only provides the data or information for management for decision making.

§  Personnel Judgment:

Management Accounting derives the information from financial and cost accounting. Thus there is a huge chance of personnel judgment by the individual who derives analyzes and interprets the information.

§  Wide Scope:

Management Accounting has very wide scope. Thus it naturally has its own limitations because of wide scope.