Objectives of Management Accounting
- The basic objective of management accounting is to assist the management in performing its functions effectively. The functions of the management are planning, organizing, directing and controlling.
Management accounting helps in the performance of each of these functions in the following ways:
- Provides data: Management accounting serves as an important source of data for management planning. The accounts and documents are a store-house of a vast quantity of data about the past progress of the enterprise, facilitating forecasts for the future.
- Modifies data: The accounting data required for managerial decisions is properly collected and classified. For example, purchase figures for different months may be classified to know total purchases made during each period product-wise, supplier-wise and territory-wise.
- Analyses and interprets data: The accounting data is probed meaningfully for effective planning and decision-making. For this purpose the data is presented in a comparative form. Ratios are calculated and likely trends are projected.
- Serves as a means of communication: Management accounting provides a means of communicating management plans upward, downward and outward through the organization. Initially, it means identifying the feasibility and consistency of the various segments of the plan. At later stages it keeps all parties informed about the plans that have been agreed upon and their roles in these plans.
- Facilitates control: Management accounting helps in translating given objectives and strategy into specified goals for attainment by a specified time and secures effective accomplishment of these goals in an efficient manner. All this is made possible through budgetary control and standard costing which is an integral part of management accounting.
- Uses qualitative information: Management accounting does not restrict itself to financial data for helping the management in decision making but also uses such information which may not be capable of being measured in monetary terms. Such information may be collected form special surveys, statistical compilations, engineering records, etc.
Take the Quiz and Check Your Accounting IQ!
1. The financial statement that reports the revenues and expenses for a period of time such as a year or a month is the
Statement Of Cash Flows
2. The financial statement that reports the assets, liabilities, and stockholders’ (owner’s) equity at a specific date is the
Statement Of Cash Flows
3. Under the accrual basis of accounting, revenues are reported in the accounting period when the
Cash Is Received
Service Or Goods Have Been Delivered
4. Under the accrual basis of accounting, expenses are reported in the accounting period when the
Cash Is Paid
Expense Matches The Revenues Or Is Used Up
5. Revenues minus expenses equals __________
6. Resources owned by a company (such as cash, accounts receivable, vehicles) are reported on the balance sheet and are referred to as __________
7. Assets are usually reported on the balance sheet at which amount?
Current Market Value
Expected Selling Price
8. Obligations (amounts owed) are reported on the balance sheet and are referred to as __________
9. Liabilities often have the word __________ in their account title.
10. Unearned Revenues is what type of account?
Stockholders’ (Owner’s) Equity
Scroll Down to Know the Right Answers:
[box] 1. Income Statement 2, Balance Sheet 3. Service or Goods have been delivered 4. Expense matches the revenue or is used up 5. Net income 6. Assets 7. Cost 8. Liabilities 9. Payable 10. Liability[/box]