Management accounting is a process that involves partnering in management decision making, designing planning and performance management systems, and provide expert in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy. Management accounting is the process of translating these estimates and analyze data into figures that will ultimately be used to take decision-making.
Management accounting helps in planning the business. Management accountant provide the information in effective manner.
Management accounting helps in managerial control.Management accounting is a useful tool in coordinating the various operations of the business.Importance of Management AccountingManagement accounting coordinates the budget preparation and control in policies and procedures.Management accounting helps in setting standard with actual results. Management accounting provides relevant information for decision making.
Function of Management AccountingScorekeeping: Scorekeeping records the results of various actions of the managers and helps in assessing whether the results expected from the various actions are realized or not.
The scorekeeping function in combination with expected results, and comparative analysis of score of various companies, divisions and departments, comparative analysis of present period scores or results with previous analysis. Account-based scoring takes this into account, providing additional account intelligence and identifying opportunities that traditional lead scoring approaches neglect CITATION Cha99 l 1033 (Coonradt & Benson, 1998).
In order to maneuver forward in making associate account-scoring model, many building blocks are required, including:Data. In account-based rating or scoring, knowledge quality and standardization are the highest priority. All duplicate contacts and multiple disconnected variations of individual company must be eliminated to avoid erroneous scoring results.
Account definition. Organize and score or rate accounts in the same way they are defined in the SFA in order to align with how reps sell. For example, don’t score accounts at the corporate level if sales representatives solely sell into individual sites.
Strategy: For account-level scoring specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives.Attention
Directing Report: Attention-directing is nothing but the process of giving a signal to the user of accounting information about the need to make decision. As such the accounting information provide arouses the user’s attention to take a decision. For example, a report of actual performance with standard budget data is a score- keeping record for decision-maker it is attention-directing information. This helps to take action and bring attention on the variances from the plans.
Problem Solving: The problem-solving function of accounting information involves provision of such information which enables the manager to find solutions to the problems. The example of problem solving can be by hoping on the strategy of backward reasoning through actions diagram drawn by management acounting, model suited to the problem which can be done by management through planning and so on (Fons, 1995).
Finance problem solving can help with the evaluation and selection of a solution, assisting with the development of a detailed requirements list, assisting with really making sure that an unbiased monitering is done which ensure that an unbiased decision is made, he added. For example, financial factor like cost analysis help organization on solving problem of delete or retain a segment, accept or reject a special order etc.Likewise another example of financial factor can be pricing analysis which helps to make decisions about the selling price of a product either in the short run or in the long run ascertaing the optimum selling price.
The financial factor such as cost-benefit analysis helps in estimating the strengths and weaknesses of alternatives that satisfy transactions, activities or functional requirements for a business. The non financial factor that can be helpful in problem solving can be acconting resource skill, positive attitude skill, effective decision making skill and so on. For example non financial factor such as strategic thinking or a bigger long-term focus instead of short-term departmental focus, extra effort and initiative to find the root cause of problems, Realistic thinking or the approach of starting from what can be done, judging whether the situation is right or wrong based on past experiences are some of the ways of solving problems. The examples of non financial factor can be positive attitude which can help in promotion of organization and reduce conflict.
Likewise, Motivation on work can also help on solving problem.BudgetingA budget is a plan that shows all monthly cash inflows and outflows. It is a snapshot of what management have and what management expect to spend, which allows to achieve financial goals CITATION Kee15 l 1033 (Anon., 2015). Budgeting is a critical part of making sure you have what you need to operate and that you intelligently allocate funds for growth CITATION Wag18 l 1033 (Wagner, 2018).
The importance of budgeting are:
A budget aids in coordination between separate activity units to ensure that all parts of the company are in balance with each other and know how they fit in CITATION Sie18 l 1033 (Siegel & Shim, 2018). It discloses weaknesses in the organizational structure.
Financial Autonomy: Financial autonomy implies the right and ability to determine the types of taxes, tax base, tax rate (Coonradt & Benson, 1998). Financial autonomy implies the right and ability of authorities to achieve a statistically and dynamically budget over which assumes financial responsibility (Holley, 2000).
Motivation: Budgets can be used to motivate employee to be more fiscally minded, to pay greater attention to detail and to think before they act. The budget as a motivational tool requires involving employees in the formation, use and monitoring of budget results.
Strategic Budgeting: Strategic budgeting is the process of creating a long-term budget that spans a period of more than one year. The intent behind this type of budgeting is to develop a plan that supports a long-term vision for the future position of an entity CITATION Bry18 l 1033 (Bryson, 2018).
Operation Budgeting: An operating budgeting shows the company’s projected revenue and associated expenses for an upcoming period and is often presented in an income statement format CITATION Dav l 1033 (Technicians, 1994). An operating budget might consist of a high-level summary schedule, supported by detail to back up each line item in the budget.
Tactical Budgeting: The tactical budgeting describes the tactics the organization plans to use to achieve the ambitions outlined in the strategic plan. The tactical budget is a very flexible budgeting which can hold anything and everything required to achieve the organization’s goals.Integration of Strategic, Tactical, Operational and BudgetingStrategic, operational and tactical budgeting requires that the latest information regarding the economy, environment, technological developments, and available resources be incorporated into the setting of goals and objectives. The budgeting process also demands that, as activity takes place and plans are implemented, a monitoring system be in place to provide feedback so that the control function can be initiated. Thus the following can be inferred for a list of top hazards discussed in a report we reviewed recently.
However, despite the budgeting differences, strategic, tactical and operational budgeting is integrally related. Thus, it can be inferred that Enterprise Risk Management (ERM) should deal very closely with these relations and the use of multiple Probability Impact Graph (PIG) matrices with multiple arbitrary scales is definitely not a rational, transparent solution. On the other hand, annual budget is an example of a single-use tactical plan. Although a budget is prepared for period of one year, shorter period (quarterly and monthly) plans should also be included for the budget to work effectively. A well-prepared budget translates a company’s strategic and tactical plans into usable guides for company activities. Therefore, planning and budgeting are co-related.