Management Accounts is one of the branches of accounting. It provides relevant information to management so that planning, organizing, directing, controlling, and coordinating business operations can be done in an orderly manner, efficiently and effectively.
Definition of Management Accounts
According to the American Accounting Association___ Management accounting includes the methods and concepts necessary for effective planning for choosing among alternative business actions and for control through the evaluation and interpretation of performances.
Scope of Management Accounting
The scope of management accounting is not limited to the presentation of information to the management. It covers the analysis and interpretation of the information presented to the management.
- Financial accounting.
- Cost accounting.
- Cost control procedures.
- Internal audit.
- Inventory control.
- Tax accounting.
- Budgetary control.
- Office services.
Objectives of Management Accounts
- Formulating the Plans and Policies: It assists management in planning the activities of the business. Planning is deciding in advance what is to be done when it is to be done, how it is to be done, and by whom it is to be done. It involves forecasting based on available information, setting goals, framing policies, determining the alternative courses of action, and deciding on the program of activities to be undertaken. Thus, planning is making intelligent forecasting. This forecasting is based on facts. Facts are provided by past accounts on which forecast of future transactions is made. Management accounting helps management in its function of planning through the process of budgetary control.
- To Help in Organizing: Thus management accountant recommends the use of budgeting, responsibility accounting, cost control techniques, and internal financial control. This all needs the intensive study of the organization structure. In turn, it helps to rationalize the organizational structure.
- It Helps in The Interpretation of Financial Information: Accounting is a technical subject and may not be easily understandable by everyone until the user has a good knowledge of the subject. Management may not be able to use the accounting information in its raw form due to a lack of knowledge of accounting techniques. The management accountant presents the information in an intelligible and non-technical manner. This will help the management in interpreting the financial data, evaluating alternative courses of action available, and guiding the management in taking decisions and having the most desired financial results.
- Motivating the Employees: The management accountant by setting goals, planning the best and economical course of action, and then measuring the performance tries his best to increase the effectiveness of the organization and thereby motivate the members of the organization.
- Helps in Controlling: Management accounting is a useful device of managerial control. The whole organization is divided into responsibility centers and each center is put under the charge of one responsible person. He will be associated with the planning and framing of the budgets and be required to execute the plans and standards and deviations are analyzed to pinpoint the responsibility.
- Helpful in Tax Administration: It helps in assessing various tax liabilities and depositing the correct amount of taxes with the authorities concerned.