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Management Accounting: Meaning and Characteristics

The financial statements prepared by businesses normally serve the informational needs of external stakeholders such as investors, lenders, customers, general public etc., The internal uses of accounting information such as the CEO of a company, top management, middle level managers however require information on a continuous basis and often well in advance in order to manage the business more effectively. Most of the information required by internal managers cannot therefor be met by financial accounting.

Thus management accounting was primarily introduced to address this information gap. The main objective of management accounting is to provide data to management and enable informed decision making.

Management Accounting- Primary Functions

  • For planning and forecasting by providing support for building short term as well as long term forecast of sales, profit, financing, demand and cause.
  • Used extensively and exclusively to monitor the financial performance of an organization. This constant comparison of actual performance with the operating plans and the standards. The variances in the financial performances are interpreted and reported on a continuous basis to the top management.
  • Facilitates better coordination across departments thereby increasing the efficiency of an organization.
  • Serves in a number of other ways as well. It supplies useful information to different functional authorities. It provides accounting information advice for price determination and pricing decisions.
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