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What is Management Accounting?

  • Highlights

  • Management accounting aids with decision making

  • The data provided is both quantitative and qualitative

  • Management accounting differs from financial accounting

  • Cost accounting is a subset of management accounting

Accounting is an indispensable part of your business’ operations. It helps you get a grip on your business venture’s financial position and allows you to make smart decisions for the future. When the analysis is focussed on the future plans of your company, the particular type of accounting that comes into play is called management accounting. Read on to know more about management accounting, how it differs from other forms of accounting and how you can benefit from it.

What is Management Accounting?

Management accounting utilises professional knowledge and methods to obtain accounting data. This helps business managers formulate policies and make decisions for the future. Here, accounting and management reports are created and statistic-based information is given to business management teams.

What are the features of management accounting?

Here are some of the salient features of management accounting:

  • Provides both financial and non-financial data to business management teams

  • Provides quantitative and qualitative information

  • Helps business owners formulate policies, forecast performance and create strategies

  • Aids with setting short- and long-term goals

  • Is dependent on cost accounting

What are the differences between management accounting and financial accounting?

Management accounting is intended for a business’ internal purposes, for managers and decision makers. Financial accounting, on the other hand, is primarily oriented towards external reporting, with regulators, shareholders and investors as users.

While management accounting is not mandatory, financial accounting for the financial year is mandatory and audited as well. Also, financial accounting contains only fiscal information, while management accounting contains qualitative, non-financial information as well.

How is management accounting different from cost accounting?

Cost accounting is a subset of management accounting. Cost accounting deals with computing, classifying, summarising and recording the cost data of a business. On the other hand, management accounting deals with data projections and is skewed towards business decisions. While cost accounting is purely quantitative, management accounting has a qualitative element as well.

You can implement a cost accounting programme without a management accounting programme, but not vice-versa. While cost accounting records for big business houses need to be audited, management accounting procedures do not require an audit. Finally, cost accounting records are useful to shareholders, vendors and the business’ management, but management accounting is primarily used for internal purposes.

What are the benefits of undertaking management accounting?

Below are the main benefits of managerial accounting.

  • Get in-depth analysis to make wise business decisions

  • Identify issues with your business model early on

  • Forecast profit margins for particular goods and services

  • Prepare data for financial accounting reports

  • Conduct a break-even analysis

  • Determine stock valuation

  • Strategise for the future

The management accounting process gives you insights into your business’ performance. It helps you detect problems at a nascent stage and determine which business services will be profitable. With it, you can devise inventory management techniques and decongest bottlenecks.

For example, if you find that your business is suffering from working capital gaps, you can remedy the situation instantly by using a Bajaj Finserv SME Loan. It offers sufficient working capital of up to Rs.30 lakh on a collateral-free basis. You can simply check your pre-approved offer to get instant approval through a customised deal, and thereby act on management accounting forecasts and predictions in a timely manner.

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