Business managers find it difficult to account for the finances of their company. Here is a solution for it – management accounting. It helps businesses to strategically tackle this issue. It enables them to be informed about the financial situation of the company and plan accordingly. With such data, businesses can manage better and perform better.
As a modern and scientific innovation of accounting, management accounting helps in effective account management. By definition, it is the process of identification, measurement, analysis, and interpretation of the financial data of an organization. Business managers can utilize the data for planning, operation control, and decision-making for the company.
Before we understand the functions of management accounting, let’s first learn about its characteristics. It includes:
- Management accounting is selective in nature in the sense it collects specific data from the business for a specific accounting task.
- Concerns about future business planning from the present finance data.
- Management accounting studies the cause and effect of financial business decisions on the business, learning about profit and loss in different cases.
- Not bound by rules of normal financial accounting.
Now, let’s go through six can’t-miss functions of management accounting.
Functions of Management Accounting
- Data management
- Financial control
- Planning and organizing
- Decision making
- Coordination
- Communication and motivation
Data Management
It serves as a vital source of financial data gathering and management. Each business has a vast amount of financial data – both historical and most recent ones. The management accounting process gathers such data and modifies them into actionable insights that the senior management can use to implement business plans.
Financial Control
Management accounting helps businesses to consolidate reports and gain control over the financial data of the company. It converts them into objectives and strategies that align with the business goals, with the help of budgetary control and standard costing.
Planning and Organizing
The accounting process helps the business plan ahead based on the financial data and organize them into actionable insights. It helps the CEOs to prepare forecast data for cash inflows or outflows. It can also help set the budgets and investments for each project.
Decision Making
Accounting can help leaders with analytical and statistical data that can help them in their decision-making process.
Coordination
The management of various projects and activities is made simple with management accounting. With a birds-eye-view of all the financial data and planning strategies, the management teams can coordinate effectively with all the internal teams and with the external clients in business.
Communication and Motivation
Gathering financial data under one roof has many advantages. Communication and motivation are two of them. The vision of data from a higher vantage point makes the management convey to those below them what they want exactly. It helps to figure out the feasibility and consistency of various ongoing projects. Apart from this, the business managers can motivate the teams to provide the best results from the data and predict accurate possible results.
Management accounting and financial accounting have many similarities. But the major difference is that one is used by business managers while the other is used by finance experts. The difference in the point of view can create various results. Anyway, it helps the business to drive growth.
