Posted in Accounting, Management Accounting
on Feb 14th, 2014 | 0 comments
Following are the advantages and limitations of management accounting:
Advantages of Management Accounting
- It helps to increase the efficiency of all functions of management
- It helps in target-fixing, decision-making, price-fixing, selection of product-mix and so on
- Forecasting and Budgeting help the concern to plan the future and financial activities
- Various tools and techniques provide reliability and authenticity to carry out the business functions
- It is useful in controlling wastage and defects
- It helps in complete communication between all levels of management
- It helps in controlling the cost of production thus increasing the profit percentage
- It is proactive-analyses the governmental policies and socio-economic scenario which helps to assess the external environmental impacts on the organization
Introduction to Bookkeeping and Accounting, Assets, liabilities, income, expenditure and the Accounting equation
Limitations of Management Accounting
UNDERSTANDING NET PRESENT VALUE AND IRR
- It is concerned with financial and cost accounting. If these records are not reliable, it will affect the effectiveness of management accounting.
- Decisions taken by the management accountant may or may not be executed by the management.
- It is very expensive. Only big concerns can adopt this method of accounting.
- New rules and regulations are to be framed, hence there is a possibility of opposition from the employees.
- It is only in the developing stage.
- It provides only data and not decisions.
- It is a tool to the management and not an alternative of management.
These are the advantages and limitations of management accounting.
Characteristics of management accounting
Following are the characteristic features of management accounting:
AN INTRODUCTION AND BROAD CLASSIFICATION OF RATIOS
- First and foremost characteristic is that it provides the necessary information to the management. It might be any data- numbers, gross profit, net profit, comaparitive financial statements, profit and loss account etc.,
- It is purely analytical
- The interpretations help the management in timely decision-making
- It adopts a selective technique to arrive at the results
- Helps to chart-out the future course of action
- Also helps to know the present financial condition of the firm and the respective implications on the stake holders.
Various tools of management accounting:
- MARGINAL COSTING
- STANDARD COSTING
- BUDGETARY CONTROL
- RATIO ANALYSIS
- FUND FLOW ANALYSIS
- CASH FLOW ANALYSIS
I am a Professor of Accounting with over thirty-five years experience teaching accounting to college students, undergraduate and MBA university students as well as CMA candidates seeking to earn their Professional Certified Management Accountant Designation. I achieved my Certified Management Accountant Designation 40 years ago.