You are on page 1of 3


Planning Information and date provided by management accounting helps management

to forecast and prepare short-term and long term plans for the future activities of the business and
formulate corporate strategy. For this purpose management accounting techniques like budgeting,
standard costing, marginal costing.
2. Coordinating: Management accounting techniques of planning also help in coordinating
various business activities. For example, while preparing budgets for various departments
like production, sales, purchases, etc., there should be full coordination so that there is no
contradiction. By proper financial reporting, management accounting helps in achieving
coordination in various business activities and accomplishing the set goals.
2. Controlling: Controlling is a very important function of management and management
accounting helps in controlling performance by control techniques such as standard
costing, budgetary control, control rations, internal audit, etc.
4. Communication: Management accounting system prepares reports for presentation to
various levels of management which show the performance of various sections of the
business. Such communication in the form of reports to various levels of management
helps to exercise effective control on various business activates and successfully running
the business.
5. Financial analysis and interpretation: In order to make accounting data easily
understandable, the management accounting offers various techniques of analyzing,
interpreting and presenting this data in non-accounting language so that every one in
organization understands it. Ratio analysis, cash flow and funds flow statements trend
analysis, etc., are some of the management accounting techniques which may be used for
financial analysis and interpretation.
6. Qualitative information: Apart from monetary and quantitative data, management
accounting provides qualitative information which helps in taking better decisions. Quality of
goods, customers and employees, legal judgments, opinion polls, logic, et, are some of the
expels of qualitative information supplied and used by the management accounting system
for better management.
7. Tax policies: Management accounting system is responsible for tax policies and procedures
and supervises and coordinates the reports prepared by various authorities.
8. Decision making: Correct decision making is crucial to the success of a business.
Management accounting has certain special techniques which help management in short
team and long term decisions. For example, techniques like marginal costing, differential
costing, discounted cash flow, etc., help in decisions such as pricing of products, make or
buy, discontinuance of a product line, capital expenditure, etc

Limitations of Management Accounting

It is based on Financial Accounting: Whatever information the management according gets,
They are of the financial accuracy of the management decisions is based on the correctness of these
information. If financial data is not reliable then management accounting will not provide correct analysis.
this effectiveness limited to the reliability of those sources.
Lack of knowledge: For taking a sound decision it is necessary that the management must have
knowledge of various fields like accounting, statistics, economics, taxation, production, engineering and so
on. But it has been observed that the person who is taking the decision may not have comprehensive
knowledge of all such subjects.




Lack of continuity and Co-ordination: In order to make the conclusions drawn by management
accountant meaningful, they must be implemented in the organisation at various levels. But in actual
practice they loose their significance because it is not feasible to implement such conclusions.
Lack of objectivity: There are every possibility of personal bias and manipulations from the
collection of data to the interpretation stage in financial accounting. Thus, it looses objectivity and validity.
Costly: The Installment of management accounting system in a concern requires large organisation
and a wide net work of rules and regulations and thus requires a heavy investment.
Evolutionary Stage: The management accounting is in a recent origin and still in an evolutionary
stage. New theories and new techniques are being introduced every now and then. Thus, Essential to keep
a continuous track for the latest theories and their application.
Effect of time element: The information received in management accounting are all past and by
the time the information and statistics are introduced. The situations are all changed and this condition puts
the organisation in difficulties.
Financial Accounting Vs Management Accounting
Financial Accounting

Management Accounting

produces Managerial
information that is used by external information that is used within an
parties, such as shareholders and organization, by managers and employees.


The main objectives of financial

accounting are to disclose the end
results of the business, and the
financial condition of the business on a
particular date.


It is legally required to prepare Managerial accounting reports are not

financial accounting reports and share legally required.
them with investors.


Pertains to the entire organization. Pertains to individual departments

Certain figures may be broken out for addition to the entire organization.
materially significant business units.


Financial accounting focuses on Managerial accounting focuses on the

history; reports on the prior quarter or present and forecasts for the future.


Financial accounts are reported in a Format is informal and is on a per

specific format, so that different department/company basis as needed.
organizations can be easily compared.


Rules in financial accounting are

prescribed by standards such as
GAAP or IFRS. There are legal
requirements for companies to follow
financial accounting standards.

frequency and

Defined - annually,
quarterly, yearly.

The main objective of managerial

accounting is to help management by
providing information that is used to plan,
set goals and evaluate these goals.


Managerial accounting reports are only

used internally within the organization; so
they are not subject to the legal
requirements that financial accounts are.

semi-annually, As needed - daily, weekly, monthly.

Monetary, verifiable information.

Monetary and




Cost Accounting Vs Management Accounting