significance of management accounting

Management accounting is needed in business because it has capacity to change the business performance and financial position. Please pay attention to the advantages of management accounting.

  1. Increase Efficiency: Management accounting increases the efficiency of operation of company Everything is done in management accounting with a scientific system for evaluating and comparing the performance. With this, we find deviations. We will take promotional decisions on this basis. Other employees will also be motivated with this because if their performance will be favorable, they get reward of this. Thus management accounting increases efficiency.
  2. Reduce Expenses: Management accounting can help companies lower their operational expenses. Business owners often use management accounting information to review the cost of economic resources and other business operations. This information allows owners to better understand how much money it costs to run the business. Business owners can also use management accounting to conduct an analysis on the quality of economic resources used to produce goods or services. If overall product quality would not suffer by using a cheaper raw material, business owners can make this change to reduce production costs.
  3. Maximizing the Profitability: Using of management accounting’s budgetary control and capital budgeting tool, company can easily succeed to reduce both operating and capital expenditures. After this, company can reduce its price and then company will receive super profits.
  4. Simplify the Financial Statements: For taking different managerial decisions, management accountant provides deep technical reports with simple interpretations in which he mentions the facts of financial statements, after this, company’s management officers understand what is in financial statement and how will they use this for company’s progress.
  5. Control of Business’s Cash Flow: It is one of important advantage of management accounting that it can be used for controlling of business’s cash flow. We all know that cash in hand is better than in fixed properties if there is emergency to pay our loan or debt. So, management accountant deeply studies from where is money coming and where is it going. To check on misuse of money will surely control of business’s cash flow.
  6. Business Decisions: Management accounting often improves the business owner’s decision-making process. Rather than making business decisions based solely on qualitative analysis, business owners or managers can use management accounting information as a decision-making tool. Management accounting usually provides a quantitative analysis for various decision opportunities. Business owners can review each opportunity through the prism of quantitative analysis to assure they have a clear understanding relating to business decisions.
  7. Increase Financial Returns: Business owners can also use management accounting to increase their company’s financial returns. Management accountants can prepare financial forecasts relating to consumer demand, potential sales or the effects of consumer price changes in the economic marketplace. Business owners will often use this information to ensure they can produce enough goods or services to meet consumer demand at current prices. Companies also pay close attention to the amount of competition in the economic marketplace. Competition can reduce the company & risk financial returns from business operations.

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