There are three main functional areas in accounting, which have to be considered in modern-day accounting for any business. The three are financial, value and administration accounting.
The first area, namely financial accounting, is primarily useful for ascertaining the results of the enterprise on a periodical basis; for example, one year. This will assist to find out the future course of action within the lengthy term. In economical terms, financial accounting treats cash as a factor of production.
Value and management accounting are instruments to enable management to take selections on a day-to-day basis. Value and management accounting will not be useful for their own sake. These functions assist management within the conduct of the business along with different key factors concerned in running of the business. Key factors might be demand, provide, competition, availability of raw materials, logistics etc.
The second area, namely price accounting, seeks to establish the value of direct prices and indirect prices concerned in production . From this value, management can make an informed decision regarding the improvement of production performance. In economic terms, cost accounting is a measure of financial performance. This data gives administration a clear indication of economic performance of the production resources of the business.
Costing additionally helps the sales manager in setting prices. However since costing is a measure of financial efficiency, it cannot be considered as a fully accurate foundation for setting prices. This is because selling costs are more of an financial decision. It will not be amiss to say here that prices rely basically on market factors. Costs rely more on demand, provide and competition and less on costs. For example, high demand coupled with lack of competition would imply that business may cost higher costs for its products, well above the costs.
The third space, namely administration accounting, is carefully interrelated with costing accounting. Though it has developed from cost accounting, management accounting has a broader role to play in administration decisions. It measures financial efficiency of the enterprise enterprise as an entire, vis-a-vis the economic atmosphere in which the enterprise operates. This function of accounting seeks to combine the monetary and price data in a broader aspect.
Finally, management accounting is instrumental in helping and advising management in making vital enterprise decisions. It makes management aware of the economic implications and penalties of their decisions. In financial terms, it implies a close research of money as an financial resource, while simultaneously treating it as a measure of economic performance. This enables management to measure it as an financial factor of production, e.g. the rate of return on capital employed.
It is thus seen that accounting has a distinct role to play in three different areas, which are equally vital. With the advent of computerised accounting, it has develop into very easy for management to monitor the accounting info on the guidelines of its fingers. Monetary accounting programs enable financial statements and various price and MIS statements to be produced almost immediately at push of a button. Now, only the laborious part of accounting is data entry. Financial managers should ensure that meaningful data is input into the system to produce meaningful information. Proper categorisation should be carried out and keying errors prevented at all costs, making certain providing accurate monetary data to management.
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