What Is Management Accounting and Its

Functions?
Management accounting is the process of preparing reports about
business operations that help managers make short-term and long-
term decisions. It helps a business pursue its goals by identifying,
measuring, analyzing, interpreting and communicating information
to managers. The main functions of management accounting include:

1.  Helping Forecast the Future

Forecasting helps decision to made and answers questions like:
Should a company invest more in equipment? Should it diversify into
different markets and regions? Should it buy another company?

Management accounting helps answer important questions that can

forecast future trends in business.

2.  Helping in Make-or-buy Decisions

Management accounting insights on cost and production availability
are deciding factors in purchasing choices. Data from managerial
accounting empower decision-making at both an operational and
strategic level.

3.  Forecasting Cash Flows

Estimating cash flows and the impact of cash flows on the business is
essential. Considering where the costs companies will incur in the
future and where its revenue will come from can help a business
make its next moves. Management accounting involves creating
budgets and trend chars that manager use to decide how to allocate
money and resources to generate the projected revenue growth.

4.  Helping Understand Performance Variances

Performance discrepancies in business are variances between what
was predicted and what was achieved. Using analytical techniques,
management accounting help management build on positive
variances and manager the negative ones.
5.  Analyzing the Rate of Return
Knowing the rate of return (ROR) is essential to know before
embarking on a project that requires a lot of investments. Vital
questions that can be answered through management accounting
include. If presented with two investment opportunities, how does a
business choose the most profitable one? In how many years will a
company break even on a project? What are the cash flows
estimated to be?

Advantages and Objectives of Management

Accounting
There are many objectives of but the prime objective is to assist the
management team of an organization in improving the quality of
their decisions. Purpose of management accounting is to help the
managerial team with financial information so that they can execute
business operations and activities more efficiently. Following is the
list of all benefits of management accounting –

1. Decision Making
2. Planning
3. Controlling business operations
4. Organizing
5. Understanding financial data
6. Identifying business problem areas
7. Strategic Management

Limitations of Management Accounting

  Data based on Financial accounting – Decisions taken by the
management team are based on the data provided by
Financial Accounting
 Less knowledge – Management has insufficient knowledge
of economics, finance, statistics, etc.
 Outdated data – Management team receives historical data,
which may change eventually when management is taking
the decisions.
 Expensive – Setting up a management accounting system
requires a lot of investment

Conclusion
Management accounting helps in analysing and recording financial
information which can be used by a company to increase its efficiency
and productivity. It presents the financial information in regular
intervals using easy-to-understand techniques such as standard
costing, marginal costing, project appraisal, and control accounting.
However, the information required to make managerial decisions
depends completely on financial statements. Hence it becomes
important to maintain error free records. Besides several
disadvantages, it acts as a useful tool for better management of
business.