Management accounting is related to preparing and presentation of accounting and controlling information in a format that helps management in the formulation of policies and in decision-making on different matters connected. It is by using the techniques of management accounting that the executives are provided the information which they require to achieve objectives for which they are accountable. Management accounting has thus changed the focus of accounting from recording and analysing financial transactions to utilizing information for decisions influencing the future. In this sense, management accounting has a crucial role to play in extending the horizons of present business. While the reports emanating from financial accounting are subject to the conceptual framework of accounting, internal reports-routine or non-routine are free from such constraints.
Management accounting is a method to planning and controlling functions of management. It produces important information for establishing plans & controls and gives information for systems of setting standard plans or targets and reporting variances between plans and actual performance for remedial actions. In this way that part of accounting system which facilitates the Management process of decision making is called Management Accounting.
Advantages and Disadvantages of Management Accounting
Advantages of Management Accounting
- It assists in decision making like pricing, accepting additional offer, choosing a suitable product mix and so on.
- It increases the efficiency of the business functions by fixing targets.
- The business activities can be planned with the help of budgeting and forecasting.
- Different tools have provided the validity and reliability of the business concern.
- It is helpful to control or prevent wastage, production defectives etc.
- It helps in communicating up-to-date information to numerous parties associated with the company.
- It is designed to control the cost of production, which will boost the profit.
- It analyses the socio and economic forces and government policies, that will help to access the impact of the business concern.
- It helps to increase the efficiency of the business.
Disadvantages of Management Accounting
- It is concerned with financial and cost accounting. In case these records are not reliable, it will impact the effectiveness of management accounting.
- Decisions taken by management accountant may or may not be implemented by the management.
- It is expensive. Only big concerns can adopt this.
- New rules and regulations are to be formed, hence there is a probability of resistance from workers.
- It is only in the development stage.
- It provides only data and not decisions.
- It is a tool for the management not an alternative of management.