Accounting is of two types that is financial accounting and management accounting, which is also known as managerial accounting. The current blog will discuss managerial accounting with respect to its use in companies. This type of accounting is useful for companies while making some important and crucial decisions regarding the company and its business. Both accounting and bookkeeping services play a very important role in the growth and development of any type of entity.
As the name of the accounting itself suggests that it is related to the management of the company, there is nothing much to explain regarding its meaning. The manager of the company helps while executing this type of accounting in the company. This accounting is not just advantageous to the company but also helpful for those who are associated with the company like investors, members and shareholders.
What is the Meaning of Management Accounting?
Application or practical applicability of the professional knowledge and skills of the accounting information in such a manner that it will help the company while forming policies, planning, procedure and control of operations of the company is known as Management Accounting. Such a kind of accounting is very important while making crucial decisions regarding the company. This will help the organisation to grow between the competitors in the market.
Advantages of the Managerial Accounting
There are many advantages of management accounting, out of which a few are given below:
Decision Making
Good decision-making is one of the important factors in the growth of any company or entity. In effective decision-making, managerial accounting helps a lot. Good managerial accounting and the growth of the company directly or indirectly affect the functioning of each other; both go hand in hand. Every now and then management of the company needs to make some important decisions on behalf of the company. This accounting ensures that all those decisions will prove beneficial for the company and its business.
Planning
Good planning in a company helps to mitigate the risk of loss to the company and leads to the growth of the company. Managerial accounting, with the help of information provided to the internal team, assists them while making an important decision with respect to the business of the company.
For example, a company has its various offices in India. Out of which its head office is in Delhi and other offices are in Mumbai, Nagpur and Indore. In the information provided to the internal team, it was found that the sales of the company’s office which is in Mumbai has been going down since last month. Now, the sales manager communicated the same information, and then the sales manager made some decisions and changed the planning regarding the sales in Mumbai. After that, the sales of the Mumbai office came on the track. This is how management accounting helps the company to plan better.
Identify the Problem areas
In any kind of company, there are certain types of problems that the company has to face every now and then. Some of them are determined and can be solved by the company before such kinds of problems create any harm to the company. This is possible only through managerial accounting.
Through such kind of accounting, with the help of various information like reports and data, many problems will be forecasted and identified by the company. And the internal management will solve such problems before they cause any harm to the company. In this way, management accounting helps identify the problem areas of the company timely so that they can be solved before they can cause any harm to the company.
Strategic Management of the Company
There is no hard and fast rule of management accounting. There is no law that will govern such kind of accounting in India. Hence, the company can use managerial accounting as per the company’s needs. As this kind of accounting is very helpful in the internal management of the company, it must be stratified. A good strategy can help in delivering better managerial accounting to the company. These are the internal methods of the company and hence can be molded as per the needs of the company.
Framing Policies and Procedures
Every type of company has their policies and procedures for the better management of the company. These policies and procedures are framed according to the work of the company. Both can be different for different companies. Such policies and procedures of the companies include but are not limited to the various aspects of the company like HR policy, leave policy, background verification procedures, vendor management policy, customer management policy, employment onboard policy etc. Management accounting helps while framing these policies and procedures of the company
Functions of the Management Accounting
There are a number of functions of managerial accounting in a company. Better managerial accounting helps any kind of company to grow in their respective field. Some of the most important functions of managerial accounting are given below:
- It helps in the margin analysis of the company. It means it determines the profit and loss of the company through the business of the company in a particular time duration.
- It helps in the break-even analysis of the company
- Works while determining the price of the goods and services as per the needs of the market and competitors in the market
- Better management of the company
- Risk management of the company
- Helps in the target costing of the company
- Time-to-time analysis of the company’s activities
- Determine the problems that a company can face in the near future
- To provide aid in the financial accounting of the company
- New product and variance analysis
Conclusion
Management accounting is like a secret weapon for companies, providing vital financial information to internal teams, especially managers, to make informed decisions. Unlike regular financial accounting, it’s all about using financial data to drive improvement. It empowers decision-making, serving as a GPS for planning and helping identify and tackle problems early on so that the business of the company will not be hampered.
Companies can customize their use like a toolbox, strategising for maximum impact in favor of the company. It dives deep into profit and loss, break-even analysis, pricing, risk management, target costing, and much more, constantly keeping an eye on company activities. In essence, managerial accounting is the behind-the-scenes superhero, ensuring the company’s growth, security, and success by harnessing the power of numbers.
