Functions of Management Accounting

The functions of management accounting describe what it actually does for management. They can be grouped as follows.

1. Collection and recording of data. It gathers accounting and other economic data — from the financial accounts, the cost accounts, and external sources — that management will need.
2. Modification and analysis of data. It reclassifies, groups and modifies the raw data so that it becomes relevant and useful for a particular purpose; for example, it separates fixed from variable costs, or groups figures department-wise.
3. Planning and forecasting. It helps management set objectives and prepare plans and forecasts for the future, chiefly through budgets and projected statements.
4. Facilitating decision-making. It presents the relevant data for a decision — the alternatives and their likely costs and benefits — so that management can choose wisely; this is one of its most important functions.
5. Controlling performance. Through techniques such as budgetary control and standard costing, it compares actual performance with planned performance, reports the variances, and so enables management to control operations.
6. Coordinating operations. By preparing budgets and reports that tie the different functions together, it helps coordinate the work of the various departments towards the common goals of the business.
7. Communicating and reporting. It communicates the results of its analysis to the different levels of management through timely and understandable reports, and also reports to outside parties where required.
8. Interpreting financial information. It interprets accounting information for management — explaining what the figures mean and what action they suggest — so that non-accountant managers can act on it. …