Principles of Management Accounting.Management accounting is the direction of accounting of an enterprise, which supports the management system of its entrepreneurial activity. The management accounting system serves only the interests of effective management. Therefore, the head of the organization makes a decision on the expediency of its maintenance based on how he evaluates the costs and benefits of its functioning. The purpose of management accounting is to provide information necessary for making management decisions.
Before you proceed, checkout:
10 Management Accounting Principles/Principles of Management Accounting.
Management accounting is based on the following principles:
- the speed of providing information(assumes a reduction in the requirements for the completeness of the information provided in favor of efficiency);
- confidentiality of information(assumes separate management accounting);
- the usefulness of the information provided(assumes the use of those planning, analysis and accounting methods that make it possible to obtain useful information. Moreover, the choice of methods depends on the tasks to be solved in the field of management.);
- the flexibility of the accounting system(assumes the adaptability of the system to the characteristics of the organization, its improvement in the event of changes in the direction of entrepreneurial activity);
- predictability of the accounting system(the focus of the accounting system at improving the results of the enterprise by forecasting income and expenses);
- cost-effectiveness of the information provided(management accounting should include only that information and reporting that is necessary for the implementation of management objectives);
- delegation of motivation and responsibility of performers(this principle implies the redistribution of responsibility between the management of different levels, as well as the definition of criteria for evaluating activities that would maximize motivation);
- deviation management(enterprise reporting should include information on deviations of real indicators from planned ones. This makes it possible to establish responsibility for the deviations that have arisen and quickly eliminate the causes of their occurrence.);
- controllability of indicators of internal reporting(implies separate reporting by the head of the business segment of the enterprise for controlled and uncontrolled indicators);
- timeliness of information provision(sometimes the completeness and documentary validity of business transactions can be ignored to ensure the timely provision of information).
Management accounting functions/Management Accounting Principles
The principles of management accounting ensure its functions:
- operational accounting, analysis, control, planning and forecasting of the activities of responsibility centers;
- creation of motivation mechanisms that allow harmonizing the goals and interests of the segments with the strategic and tactical goals of the enterprise;
- providing information support in making management decisions that are aimed at maximizing profits, provided that the capital of the enterprise is preserved.
Components of the management accounting method
- Documentation– primary documents that reflect the economic activities of the enterprise. Primary accounting is the main source of information for management accounting.
- Inventoryis a way to determine the state of an object at the moment.
- Generalization of information and its grouping areeffectively used when making strategic decisions ( see also – strategic management ).
- Reconciliation accountsare records of the totals of transactions for a given period that help establish the credibility of the accounts.
- Planningis an ongoing process that balances market conditions with enterprise opportunities.
- Rationingis the calculation of norms, which is aimed at converting costs into a product.
- Limitingis the exercise of control over material costs.
- Analysis. This element should be subject to both the activities of the enterprise as a whole, and its divisions separately. Based on the results of the analysis, deviations and their causes are determined.
- Controlis the final planning process that allows you to eliminate the deviations that have arisen.
For more such interesting article like this, app/softwares, games, Gadget Reviews, comparisons, troubleshooting guides, listicles, and tips & tricks related to Windows, Android, iOS, and macOS, follow us on Google News, Facebook, Instagram, Twitter, YouTube, and Pinterest.