An Assessment of the Importance of Management Accounting

An Assessment of the Importance of Management Accounting

Management accounting is an important aspect for companies that is used for internal planning and control. Managers use this accounting information to help make essential decisions within the business. The information gained through management accounting can help organizations do many things like cut costs, improve efficiency, detect problem areas, and eliminate unnecessary elements. Many companies rely heavily on management accounting for success in keeping the business running.

Management accounting provides information to help managers plan and control operations as they lead the business. Such operations include supervising the company's plant, human resources, and equipment. "Management accounting often requires forward looking information because of the futuristic nature of business decisions, and

managers are responsible to external stakeholders, so they must plan and control operations carefully''(Horngren & Harrison, 2007, p. 902). Planning means choosing goals and deciding how to achieve them. Most business's main objective is to boost income and profits. To achieve this objective, managers sometimes increase selling prices or increase advertising to try and boost sales. The budget is a measuring or calculation that managers bring into play to harmonize the businesses activities. This allows for them to see the expected financial impact of the decisions and it helps to estimate the resources they will need to reach their goals. Then the business begins to employ the plans and evaluate operations by contrasting and comparing results to the budget. The managers want for the actual costs to be lower than the budgeted costs, this is a simple was to gage how well the company is performing, this also gives them a chance to make changes based on what they find.

Management accounts are priceless when it comes to a company making important and timely management decisions about their business. It is clear that different businesses will have different management accounting needs and this will depend on the areas that the business finds are most important to them. "Companies are under no legal obligation to draw up management accounts; however, many find that it makes running a business so much simpler if they do prepare the accounts; and many companies produce them as regularly as monthly or quarterly" (Gill, 2008). "Management accounts are usually for analyzing the recent past performances of the business and also usually study elements that look at the future of the company as well, which can include looking at profit forecasts, cash flow and sales" (Gill, 2008) . The results from this analysis are compared to the figures that have been collected from previous budgets and forecasts. "The information gathered for the management accounting is usually broken down so that the performance of different parts of the company can all be measured separately to ensure that they are all working to the best of their abilities" (Gill, 2008). Management accounting is not required to abide by any governed accounting standards or principles, which gives accountants the ability or room to customize reports for the company's management.

Sources of data for management accounting information often include internal business departments and processes. The production department is a primary data source for management accounting purposes. The accountants in this department review information relating to raw materials, labor and manufacturing overhead. According to Viltez (2010), even though manufacturing and production companies usually have more information relating to the production of goods and services, many companies have some type of information for these functions. Business owners and managers can use this information to determine the company's production efficiency and effectiveness. Production output is also reviewed by the amount of cost attributed to each item produced by the company.

The service department is another source for data that is used in management accounting. Management accounting needs figures from the sales department to determine information relating to the company's breakeven point, gross profit analysis and budget process. This information typically includes gross sales, sales discounts, returns or allowances, and cost of goods sold (Viltez, 2010). This provides management accountants with resources to measure gross profit and create benchmarks for a comparative analysis. A comparative analysis allows owners