Importance of Management Accounting In Companies


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Grubnic and Birchall, 2014). Therefore, management accounting is based on the costing principles. Management accounting reports are for the internal assessment of an organization. These reports usually consist of details about the cash, sales revenues as well as the organization's accounts payable and receivables (Bebbington, Unerman, and O'Dwyer, 2014). The present report is going to discuss various useful aspects of management accounting along with their applications. Along with that different types of costing methods specifically absorption and marginal costing will be discussed in detail. The present report effectively addresses the importance of management accounting in companies. The various uses and applications of management accounting have been analyzed. Also, necessary examples have been cited for the purpose of establishing the relevance of the different aspects used in management accounting. Moreover the explanation of how management accounting can be used to improve the cash flows and financial returns of the business.


1. Importance of Management Accounting

Management Accounting makes an efficient partnering with the other financial aspects of an organisation. It also has a great significance in the decision-making, devising planning and performance management systems and thus providing expertise in financial reporting and control to assist the management in the formulation and implementation of an organisation strategy (Bebbington, Unerman, and O'Dwyer, 2014). Following are some of the reasons highlighting the importance of the use of management accounting concepts in various organizations.

Measuring Performance- Two types of performance can be measured with the help of management accounting. Firstly, analysis is made at the individual employee’s level that is the performance of employees. Secondly, the efficiency of performing various tasks is measured with that of their respective standards maintained by the organization. In this process, actual performance is compared with the standard performance and the deviations are analysed as well. These deviations will be finally reported to the management and hence individual accountability for different tasks will be established (Sandalgaard and Nikolaj Bukh, 2014). This will help in the performance assessment of each employee and the respective departments. Also, the policies regarding incentives can be framed with reference to their performance (Bebbington, Unerman and O'Dwyer, 2014).

Risk Assessment- This is also one of the major objectives of management accounting. It is used for the assessment of risks and for managing them effectively in order to prevent any uninterrupted business operations.
Systematic Allocation of Resources-udgeting is an important area in management accounting which includes the allocation of resources for different business operations. This will prevent the wastage and production of damaged units in the company. Proper resource allocation is also important for the purpose of efficiently managing all the scarce resources available in the organisation. The management accountant has been appointed to utilise the current resources as their primary aim is to minimise the costs. Cost reduction is the basic factor which is followed by devising strategies to ensure the achievement of several goals and objectives. The resources that are financial resources are optimally utilised in the best possible manner to facilitate various users. The budgeting will determine the current requirements of the resources in a business to meet the needs and expectations of the existing

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