Management accounting techniques and concepts. Accounting Essay

Management accounting techniques and concepts
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Abstract
This paper explains what management accounting is and evaluates how it is different from financial accounting. Additionally, the role of management accounting in an organization will also be explained. The paper also evaluates some of the challenges that managers encounter when making and implementing decisions. Lastly, the effectiveness of two management accounting techniques will be outlined and explained.
Introduction
Management accounting is also referred to as the managerial accounting and it involves analyzing business costs and operations which are essential in preparing internal financial reports and accounting records which are used by the manager in making important business decisions that are vital in achieving the objectives and goals of an organization. It is important to note that managerial accounting focuses on identifying, measuring, analyzing, interpreting and communicating information to the managers to guide them in determining which is good for the development of the organization. This paper will examine the challenges businesses face when making and implementing decisions and evaluate the effectiveness of balanced scorecard as a key management accounting technique.
Managerial accounting also differs from financial accounting. This is because managerial accounting focuses on providing and analyzing information which is aimed at enabling the managers to make effective organizational decisions. It concentrates on the ways to inform internal decision makers (Southern New Hampshire Univerity, 2018). On the other side, financial accounting aims on creating and evaluating financial reports which are reported to government agencies or other stakeholders such as the creditors or investors are these statements less focused on making decisions that may affect the future projects of the business (Banke et al., 2017).
Management accounting is significantly essential in every organization. Some of the roles it plays in the business include helping in forecasting the future of the firm. Also, cost accounting may also help in understanding performance variance. Through proper and thorough analysis, it possible for managers to comprehend the variance between what was predicted and what was actually achieved (Rongala, 2015). Cost accounting also aids in analyzing and evaluating the rate of return. This is particularly essential because some projects may require heavy investments and the company would, therefore, want to analyze the expected rate of return for the available projects (Rongala, 2015). The organization chooses the investment opportunity that is most profitable.
Challenges facing business when making and implementing decisions
When making decisions, managers may experience several challenges, these include poor quality data is a major problem for many managers. Organizations operate in a data-centric world where managers are provided with complex and detailed financial statements that they are required to use when making essential decisions in the organization. Sometimes the data found in databases may be inconsistent and out-of-date, this makes it unsuitable and unreliable for the decision-making process (Perry, 2018). Implementing decisions based on such data would eventually affect the success and the competitiveness of the business because it does not reflect the real situation of the organization. To overcome this challenge, it is advisable that decision makers be provided with software solutions which may help in monitoring, analyzing and improving the quality of the organizational data.
Also, the silo mentality in organizations may also impact negatively the efforts of managers and leaders in making fast and vital decisions. Organizational silos occur when employees for some departments in an organization do not want or has no adequate means to share information or knowledge with each other (Gleeson, 2013). This condition normally results in some departments accumulating massive amounts of data which is rarely used since it does not move between the various units or persons (Nyberg, 2016). In some case, this information may not be received by the managers or by the organizational executives. This problem can be solved by streamlining the processes of information exchange in the organization and also minimizing the problems related to internal communications.
Management Accounting Techniques
The basics and foundations of management accounting have not significantly alternated for the last few years, changes in the production process of most organizations have pushed the management accounting to update its practices (Freedman, 2018). The techniques used in cost accounting provide business managers and leaders with important tools that are crucial in measuring and increasing the profit margins while lowing the operating expenses. Applications of these management accounting tools enable organizational managers to direct the firm in the desired direction thus enhancing profitability (DeBenedetti, 2018). Some of the key techniques for management accounting include:
Balanced Scorecards
The balanced scorecard is a performance management tool that is used in identifying and improving various internal organizational functions and their resulting outcomes. It combines both financial and non-financial measures to give a more holistic snapshot of the firm or individual p...