Functions of Management Accounting

>> March 22, 2011


Management accounting is one of important part of accounting. To use accounting for decision making encourages its development. Management accounting’s main function is to collect accounting information which is useful for different managerial functions like planning, organization, coordination and control. Now, we are explaining other important functions of management accounting.

1st Planning and Forecasting Function:

In 2005, Mr. A started his small business. He was well educated of management accounting tools. By effective use of management accounting, he developed his small business. Now, after 5 years, he is operating good company. Management accounting’s basic functions like to study ratio analysis and cash and fund flow statements can develop any small business like Mr. A. How is it possible?

One – Businessman can easily watch in which project he invested his cash and fund. He can see whether its ROI and ROE is better than any other investment.

Second – He also makes good plan to reduce his investment in that project whose return is not sufficient.

2nd Modification of Data Function:

Second good function of management accounting is to modify of raw accounting data. After this, businessman bids fair to effective use these modify data in business’s management. Management accounting can be used to classify every accounting item in different views. There are so many accounting software which can be helpful to show sale or purchase or any other accounting items according to production level, area, season, country, age or quality of debtors or creditors.

One Side, it will build up analytic approach of company and other side, it will be helpful to check up each and every accounting item from different angels.

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.

4th Management Control Function:

Management control can be possible only with management accounting function. Management accounting uses responsibility accounting tool in which different cost, revenue and investment centers are made. Proper budget is maintained in each centre. Analysis of actual recorded performance is compared with standard performance and deviation is evaluated. This will be helpful to fix up wrong side of company’s decision promptly. Thus company can do smoothly management control.

5th Communication Function:

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





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