Characteristics of Management Accounting

Management Accounting includes two words which are “Management” and “Accounting”. It is the study of accounting’s managerial elements. It is a tool in management’s hands for exercising decision-making. The goal of management accounting is to restructure accounting in a way that assists management in formulating policies and monitoring their implementation.

Management Accounting

Management accounting is the presentation of accounting data in a way that it aids management in policy development and day-to-day operations of a business. Management accounting concentrates on a company’s revenues and expenses, and also on asset utilisation. Unusual spikes and reduction in revenues and expenses are noted and given to management by the person who is working in management accounting. The goal of this analysis is to take action to improve the financial performance of the company. James H. Bliss was the person to give the concept of management accounting.

Nature of Management Accounting

Though Management Accounting is a relatively new discipline of accounting, it may be classified as both a science and an art. Management accounting is the science of ‘quantifying and summarising’ accounting data as well as the art of ‘interpreting’ it.

Management Accounts obtains its conclusions from data quantified in figures, which are collected, processed, and objectively analysed. As a result, “Objectivization and Quantification of Progress and Problems” is required. Management accounting might be considered a science from this perspective.

However, as indicated by the interpretation of facts, deductions, and conclusions formed from analysis, Management Accounting also requires human judgement, emotions, whims, and prejudices. In deriving the meaning of data, subjectivity is unavoidable. Deductions cannot be precise or scientific. Personal judgement of the management accountant may have a considerable impact on the interpretations and deductions. Management accounting might be considered an art from this perspective.

Characteristics of Management Accounting

Providing Financial Information

The primary goal of management accounting is to deliver financial data to executives. The data is presented in a format that allows various levels of management to review policies and make decisions.

Cause and Effect Analysis

Financial accounting is limited to the display of the profit and loss account and the balance sheet. The cause and effect of the facts and numbers on which management accounting is based is examined. If there are losses, the causes of the losses are examined. If profit is made, the variables that influence profit are examined as well. To draw suitable conclusions about the effect of those elements on profit, the quantity of profit is compared to expenditure, sales, capital used, and so on.

Use of Special Techniques and Concepts

Standard costing, budgetary control, marginal costing, fund flow, cash flow, ratio analysis, responsibility accounting, and other techniques are used in management accounting to make accounting data more usable and beneficial to management. Each of these techniques or concepts is valuable for a certain goal, such as data analysis and interpretation, establishing operational control, and so on.

Decision Making

The primary goal of management accounting is to offer relevant data to management in order for them to make important decisions. Historical data serves as a foundation for predicting future impacts, developing alternatives, and making decisions about which course of action is the most advantageous.

Functions of Management Accounting

Decision Making

The most important goal of management accounting is decision making. Managerial decisions are critical and play an important role in determining the future of a company. If the managers of the organization are well-educated on the financial health of the company, then they can make more efficient decisions.

Planning

One of the most significant roles of management accounting is to supply the necessary data and information for creating short- and long-term projections and managing corporate operations.

Coordinating

The management accountant improves an organization’s efficiency and profits by providing various coordination tools such as budgeting, financial reporting, financial analysis and interpretation, and so on. It aids management by reconciling cost and financial records, preparing budgets and establishing standard costs, and analysing cost deviations to enable management by exception.

Financial Analysis and Interpretation

The management accountant analyses the data and presents it to the management in a non-technical manner, together with his comments and ideas, so that the owners and senior management employees can understand it and make informed decisions.

Conclusion

Management accounting is the presentation of accounting data in a way that it aids management in policy development and day-to-day operations of a business. The primary goal of management accounting is to deliver financial data to executives. There are many functions of management accounting like Decision making, Coordinating, Planning and Control performance. Cost accounting is a type of accounting which focuses on cost calculation, cost control, and cost reduction. Management accounting is a type of accounting which aids management in making sound company decisions.