Nature of Management Accounting
The purpose of management accounting is to collect and provide accounting, cost accounting, economic and statistical information to the men at various managerial levels in order to assist them with their managerial functions and their evaluations.
In the performance of managerial functions, namely planning, decision-making, and control, it involves the development and application of various techniques of recording, analyzing, interpreting, and presenting financial, costing, and other data.
Management accounting incorporates not only accounting techniques, but also statistical and mathematical ones.
Since management accounting is forward-looking, it should be able to treat economic data and information in a way that will facilitate its use by management.
The following aspects are considered as the nature of management accounting:
(i) Management accounting is a system for making decisions
➔ Accounting information provided by management accounting assists management in creating policies and in management’s day-to-day operations.
➔ Even though management accountants do not make decisions, they provide management with data which can be used in making decisions.
➔ It provides a great deal of information in a systematic and meaningful manner.
(ii) Management accounting is a future-oriented discipline
➔ Management accounting deals with the future, unlike financial accounting.
➔ It facilitates the planning of the future since decisions are always made for the future.
➔ A management accounting system can provide selective and valuable information from the data collected in the decision-making process.
➔ Management accounting employs forecasting techniques and scenario analysis to help organizations anticipate future trends, risks, and opportunities, enabling proactive decision-making and strategic planning.
(iii) Management accounting employs a selective approach
➔ When interpreting a financial statement, the management accountant only looks at the data that is useful for decision-making.
➔ Management accounting selectively chooses costing methods based on the nature of the business and the information required for managerial decisions.
➔ This selective approach ensures that the costing method used aligns with the specific needs of the organization.
(iv) Management accounting analyses different variables
➔ Management accounting enables an examination of the reasons behind variations in profit as compared to the past.
➔ The analysis examines how various variables affect the profits and profitability of the company.
➔ They examine revenue streams, sales trends, and pricing strategies to evaluate the profitability of products/services and identify areas for revenue growth.
(v) Management accounting does not set particular formats for information
➔ Providing the management with necessary information in the form which may be more useful for making various decisions about different aspects of the business is one of its main functions.
➔ Unlike financial accounting, which follows specific standards like GAAP or IFRS for external reporting, management accounting is flexible in how it presents information.
➔ Management accounting focuses on internal users, such as executives and managers, tailoring information to meet their specific needs and preferences rather than adhering to standardized external reporting requirements.
References
- Management Accounting Nature and scope. (2020, October 28). Theintactone. https://theintactone.com/2019/06/04/ma-u1-topic-1-management-accounting-nature-and-scope/
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I am Smirti Bam, an enthusiastic edu blogger with a passion for sharing insights into the dynamic world of business and management through this website.
I hold a MBA degree from Presidential Business School, Kathmandu, and a BBA degree with a specialization in Finance from Apex College,
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