What is meant by management Accounting? Explain the advantages and limitations of Management Accounting.
Meaning:- Management Accounting is the Identification, Accumulation, Measurement, Analysis, Preparation, Interpretation and Communication of information that helps Managers in fulfilling organisation goals. Management Accounting is a source of information which supplies the right information to the right person at the right time.
Definition:- “Any form of accounting which enables a business to be conducted more efficiently can be regarded as Management Accounts
In other words:- Management Accounting is concerned with the information of management. Which deals with the managerial decision. Which enables the business to be run more efficiently towards the organisation goals.
Following are the Advantage of Management Accounting. Which arise out of use of Management Accounts
- Increase Efficiency:- Management accounting provides the right information to the right person at the right time. Which controls the activities of business through systematic planning. This will lead to increase in efficiency in business and work of organisation will be done efficiently.
- Efficient Planning:- Management accounting provides the help to management for planning. So various decisions are taken by management with the help of efficient planning.
- Increase the return on Capital Invested:- Management Accounting helps in planning, coordinating, controlling and organising the activities of the business. Thus, this will all lead to maximum return on capital employed.
- Effective Control:- Management accounting uses such as Standard costing, budgetary control, internal audit etc. So techniques of cost control and cost reduction adopted under this system. Which leads to price reduction and improved quality of goods.
- Increased good public Relationship:- Management accounting leads to healthy relationship between management and employees and minimises unhealthy and bad relationships. Which will lead to overall profit maximisation and minimise cost. It will lead to better public relations.
- Upliftment of society :- Management accounting utilises the available resources in the most effective and economical manner. Which will lead to development of the nation and economy.
- Improved Services to customers:- Management accounting adopted effective planning and controlling which leads to quality products at lower prices to the customers. And Customers are believed to have better and improved services. So goodwill of business will also increase.
Whether it has some advantages, However its has some limitations. Let’s study its limitations. These limitations are following:
- Dependency:-Management accounts depends upon the financial accounting and cost accounting. Thus, information of management accounting depends upon the accuracy of data provided by such conventional accounts. If accounts data is inaccurate then information provided by management accounting will also be wrong.
- Expensive:- Management accounts is an additional accounting. So adoption of it into business will lead to increased expense of business. Because more staff is required to prepare it. It requires a wide range of data, rules and regulations for this to carry high investment. Which will make it a costly affair.
- Complicated approach:- knowledge of various fields such as accounts, taxes, and economy are required to apply such management accounts. So it is difficult to find a person who is an expert in such a field. So who are not wholly expert with all such subjects. It will be complicated for them to use the information provided by management Accounts.
- Recent Origin:- Management accounting is a new accounting. Thus, its development has not reached its peak yet. So any change in the economy will affect the information of management Accounts. There is still a wide need for further improvement in the tools and techniques of management Accounts. As it is a new discipline. Sometimes it seems unbelievable.
- Not an end itself:- Management accounts provides a path of success which needs to be followed. If it is not done so, desired results will not be achieved by the management. It is only a planned way but it is not a conclusion in itself.
- Reluctant to change:- Employees don’t like to change in their work. Which is possible with management accounting. So they considered that Management would increase their task of work which would lead to increased responsibility in the organisation. Because they are accustomed to the setup organisation. Thus, Management accounts is not welcomed by them.
- Non Cooperation Of Employees:- Employees always perform their activities as per set standard, otherwise they will be treated as inefficient in the organisation. In this process the responsibilities of the employees are determined first. Therefore, employees are not willing to cooperate with the Management.
- Approximate:- Provided data by Management accounts is not accurate in all respects. An approximate data is involved in the process of preparation of such data. Some degrees of approximation data is used on the basis of historical data in the Management accounting report. Which are not correct wholly. Rather it involves some approximation in Management accounting.
- Subjectively:- Management accounts use many personal judgments to interpret and analyse the information which will lead to involvement subjectively in the decision making process. So decisions are influenced by personal bias of the interpreter of data. Thus, there is a lack of scientific analysis under Management accounts.
Conclusion:- Thus, Management accounting is full sources of information which will enable the business to be conducted more efficiently. Due to which business will derive many benefits or advantages on the way to the commercial path. However, it has some Limitations which can be considered by reading the above answer.
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