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How Management Accounting Facilitates Strategic Business Planning

Management accounting refers to the procedure of recognizing, measuring, gathering, studying, conducting research, analyzing and communicating the information utilized by management for planning, assessment and control inside an organization. It also incorporates the activity of preparing financial reports for non-management groups like regulatory agencies, tax authorities, creditors and shareholders.

This Branch of Accounting Encompasses three Broad Areas:

  1. Risk Management: Contributes to the practices and framework for identification, measurement, management and reporting of risks to achieve the goals and objectives of an organization.
  1. Strategic Management: Management accountant plays the role of a strategic partner for an organization.
  1. Performance Management: Management of the performance of an organization and improving the practices like business decision-making.
Management accounting is extremely useful for an organization. It facilitates the formulation of strategies that helps in achieving the goals at the earliest. Moreover, this branch of accounting is also utilized for planning and construction of business activities to maintain business growth. Besides this, it also enables financial decision-making through the use of business strategies. Not only does it provide support to the preparation of financial reports, but also safeguards the assets of an organization. Apart from these, the field also assures optimal utilization of resources.

Management accounting adds one more dimension to accounting, in the form of a planning, decision-making and control tool for the management. The field also facilitates management activities and offers futuristic and historical information to a business. As the name itself suggests, management accounts are particularly useful to the managers of an organization. The relevance of these accounts for internal use distinguishes them from financial accounting. Moreover, this branch of accounting deals with the processing of financial data as well as its communication to the managers.

Budgetary control and cash flow forecasts are some specific types of reports associated with this branch of accounting. The format of the management reports is not governed by any strict guideline or rule. This is due to the fact that information can be presented in both formal and informal manner. Unlike financial accounts, the management accounts are not a legal requirement. Since these focus on specified activities or areas, they do not address to the overall requirements of the organization. Moreover, the accounts utilize financial as well as non-financial information.

Management accounting records the events of past, but it can be utilized as a future planning tool. Moreover, techniques like regression analysis, high-low method and linear programming help in forecasting the future performance on the basis of past data.