Management Accounting: Functions # 6.

Communication:
The management accountant prepares various reports to
communicate the results to the superior, to motivate the employees, to
exercise effective control on their activities and to enable the
management to take sound decisions. He also communicates with the
outside world about the progress of the business through published
accounts and returns.

Management Accounting: Functions # 1. Forecasting and

Planning:
One of the important functions of management accounting is to
provide necessary information and data for making short-term and
long-term forecasts and planning the operations of the business.

For doing this, the management accountant uses techniques of

statistics, like probability, trend study of correlation and regression;
budgeting and standard costing; capital budgeting; marginal costing
and cash funds flow statements etc. These are important tools in the
hands of management accountant for the planning of the business.
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accounting/5864

3rd Interpretation Function:

It is also function of management accounting to do complete interpretation of financial analysis. It

cuts down work burden of manager because management accountant supports him by providing fact
and interpretation of financial data after its analysis
5th Communication Function:

Management accounting puts together all useful accounting information with comparable past data
for good communication with govt., bankers and investors.

Objective # 1. Assistance in Planning and Formulation of

Future Policies:
Management accounting 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 on the basis of available information,
setting goals, framing policies, determining the alternative courses of
actions and deciding on the programme 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.

Objective # 2. Helps in the Interpretation of Financial

Information:
Accounting is a technical subject and may not be easily
understandable by everyone till 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 lack of knowledge of accounting
techniques.

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.

Objective # 4. Helps 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 organisation
structure. In turn, it helps to rationalise the organisation structure.
Measurement of Performance: Managers have to compare the actual results of operations to
budgeted figures to evaluate the performance of the business. They use managerial accounting
techniques such as standard costing to evaluate the performance of specific departments. They then
make necessary adjustments in those departments which are not performing well.
 The differences between management accounting and financial accounting include:[1]

1. Management accounting provides information to people within an organization while financial

accounting is mainly for those outside it, such as shareholders
2. Financial accounting covers the entire organization while management accounting may be
concerned with particular products or cost centres.

Managerial accounting is used primarily by those within a company or organization. Reports can be
generated for any period of time such as daily, weekly or monthly. Reports are considered to be
"future looking" and have forecasting value to those within the company.
Financial accounting is used primarily by those outside of a company or organization. Financial
reports are usually created for a set period of time, such as a financial year or period. Financial
reports are historically factual and have predictive value to those who wish to make financial
decisions or investments in a company. Management Accounting is the branch of Accounting that
deals primarily with confidential financial reports for the exclusive use of top management within an
organization. These reports are prepared utilizing scientific and statistical methods to arrive at
certain monetary values which are then used for decision making. Such reports may include:

Sales Forecasting reports

Budget analysis and comparative analysis
Feasibility studies
Merger and consolidation reports
Financial Accounting, on the other hand, concentrates on the production of financial reports,
including the basic reporting requirements of profitability, liquidity, solvency and stability. Reports of
this nature can be accessed by internal and external users such as the shareholders, the banks and
the creditors.

What is the difference between financial

and managerial accounting?
A common question is to explain the differences between financial accounting and managerial
accounting, since each one involves a distinctly different career path. In general, financial accounting
refers to the aggregation of accounting information into financial statements, while managerial
accounting refers to the internal processes used to account for business transactions.

There are a number of differences between financial and managerial accounting, which fall into the
following categories:

Aggregation. Financial accounting reports on the results of an entire business. Managerial accounting
almost always reports at a more detailed level, such as profits by product, product line, customer, and
geographic region.
Efficiency. Financial accounting reports on the profitability (and therefore the efficiency) of a business,
whereas managerial accounting reports on specifically what is causing problems and how to fix them.
Proven information. Financial accounting requires that records be kept with considerable precision,
which is needed to prove that the financial statements are correct. Managerial accounting frequently
deals with estimates, rather than proven and verifiable facts.
 Reporting focus. Financial accounting is oriented toward the creation of financial statements, which are
distributed both within and outside of a company. Managerial accounting is more concerned with
operational reports, which are only distributed within a company.
Standards. Financial accounting must comply with various accounting standards, whereas managerial
accounting does not have to comply with any standards when it compiles information for internal
consumption.
Systems. Financial accounting pays no attention to the overall system that a company has for
generating a profit, only its outcome. Conversely, managerial accounting is interested in the location
of bottleneck operations, and the various ways to enhance profits by resolving bottleneck issues.
Time period. Financial accounting is concerned with the financial results that a business has already
achieved, so it has a historical orientation. Managerial accounting may address budgets and forecasts,
and so can have a future orientation.
Timing. Financial accounting requires that financial statements be issued following the end of an
accounting period. Managerial accounting may issue reports much more frequently, since the
information it provides is of most relevance if managers can see it right away.
Valuation. Financial accounting addresses the proper valuation of assets and liabilities, and so is
involved with impairments, revaluations, and so forth. Managerial accounting is not concerned with
the value of these items, only their productivity.

There is also a difference in the accounting certifications typically found in each of these areas. People
with the Certified Public Accountant designation have been trained in financial accounting, while those
with the Certified Management Accountant designation have been trained in managerial accounting.

Pay levels tend to be higher in the area of financial accounting and somewhat lower for managerial
accounting, perhaps because there is a perception that more training is required to be fully conversant
in financial accounting.

BREAKING DOWN 'Managerial Accounting'

Managerial accounting encompasses all fields of accounting aimed at informing
management of business operation metrics. Managerial accountants use information
relating to the costs of products or services purchased by the company. Budgets are also
extensively used as a quantitative expression of the business plan of operation. Individuals
in managerial accounting utilize performance reports to note deviations of actual results
from budgets.

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Margin Analysis
Managerial accounting handles margin analysis, the amount of profit or cash flow generated
by the sale from a specific product, customer, store or region. Margin analysis involves
analyzing the incremental benefit attained by increased production and flows into breakeven
analysis. Breakeven analysis involves calculating the contribution margin on the sales
mix to determine the unit volume at which the business gross sales equal total
expenditures. This information calculated by managerial accountants is useful for
determining price points for products and services.

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How to analyze information is something that many professionals think about because they are
overloaded with information. Every day you are bombarded with problems to solve and decisions to
make. The quality of your solutions and decisions is only as good as the information they are based on.
Once you have gathered all of the relevant information about your problem, you need to do something
with it. Simply having or knowing the information is not enough to finish the critical thinking process.
The next step is to analyze, or break down the information. Begin by organizing the information in a way
that makes it easier to understand. Then, look closely at the separate pieces of information. Do you see
any patterns or trends? Analyzing information gets you one step further along the critical thinking
process. Analyzing information brings order to the critical thinking process and the large amounts of
information you will go through.
Measuring Information Effectiveness It is only a matter of time before corporate leadership will shift
attention to information management as a resource of greater economic leverage than any other input.
In terms of its value the total costs of information will certainly warrant at least the same concentrated
attention as is presently bestowed on capital costs. The need to answer the following questions will
direct such efforts: Is information technology improving the productivity of corporate information
resources? How does one track gains from investments resulting from changes in management
processes and increased employee training? What new measures of effectiveness are needed to equip
operating management with indicators to guide their decisions investments in training, innovation,
market development and business transformation? Which indicators support motivation to make the
right choices and hence, that could be used for incentive compensation purposes?