There are three main functional areas in accounting, which must be considered in modern day accounting for any business. The three are monetary, price and management accounting.
The primary space, namely monetary accounting, is primarily helpful for ascertaining the results of the business on a periodical basis; for instance, one year. This will help to find out the future plan of action in the long term. In economical terms, monetary accounting treats money as a factor of production.
Cost and administration accounting are tools to enable management to take decisions on a day-to-day basis. Price and management accounting usually are not useful for his or her own sake. These capabilities assist management in the conduct of the enterprise alongside with different key factors involved in running of the business. Key factors may very well be demand, supply, competition, availability of raw materials, logistics etc.
The second space, namely value accounting, seeks to ascertain the worth of direct prices and indirect prices involved in production . From this value, management can make an knowledgeable choice relating to the improvement of production performance. In financial phrases, price accounting is a measure of economic performance. This data offers management a transparent indication of economic performance of the production resources of the business.
Costing also helps the sales manager in setting prices. However since costing is a measure of economic performance, it cannot be considered as an absolutely accurate basis for setting prices. This is because selling prices are more of an economic decision. It would not be amiss to mention here that costs depend basically on market factors. Prices depend more on demand, provide and competition and less on costs. For instance, high demand coupled with lack of competition would imply that enterprise might cost higher prices for its products, well above the costs.
The third area, namely administration accounting, is intently interrelated with costing accounting. Though it has developed from value accounting, management accounting has a broader function to play in administration decisions. It measures financial performance of the business enterprise as a complete, vis-a-vis the economic environment in which the enterprise operates. This perform of accounting seeks to mix the financial and value information in a broader aspect.
Finally, management accounting is instrumental in helping and advising management in making necessary enterprise decisions. It makes management aware of the financial implications and consequences of their decisions. In economic terms, it implies a detailed research of money as an financial resource, while simultaneously treating it as a measure of economic performance. This enables administration to measure it as an economic factor of production, e.g. the rate of return on capital employed.
It’s thus seen that accounting has a distinct function to play in three totally different areas, which are equally vital. With the advent of computerised accounting, it has develop into very straightforward for administration to monitor the accounting data on the ideas of its fingers. Monetary accounting programs enable financial statements and varied cost and MIS statements to be produced almost instantly at push of a button. Now, only the laborious part of accounting is data entry. Financial managers should be sure that meaningful data is input into the system to produce significant information. Proper categorisation should be accomplished and keying errors prevented at all prices, ensuring providing accurate financial information to management.
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