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Accounting - Three Main Areas
There are three major functional areas in accounting, which need to be considered in modern-day accounting for any business. The three are monetary, value and management accounting.
The first area, namely monetary accounting, is primarily helpful for ascertaining the results of the enterprise on a periodical basis; for instance, one year. This will assist to find out the future plan of action in the lengthy term. In economical terms, financial accounting treats money as a factor of production.
Value and administration accounting are instruments to enable administration to take choices on a day-to-day basis. Price and administration accounting should not useful for their own sake. These capabilities help management in the conduct of the business alongside with different key factors concerned in running of the business. Key factors could be demand, provide, competition, availability of raw material, logistics etc.
The second area, namely value accounting, seeks to determine the worth of direct prices and indirect prices involved in production . From this worth, administration can make an informed choice concerning the improvement of production performance. In economic phrases, cost accounting is a measure of financial performance. This information gives administration a clear indication of financial efficiency of the production resources of the business.
Costing also helps the sales manager in setting prices. But since costing is a measure of economic performance, it cannot be considered as an absolutely accurate basis for setting prices. This is because selling costs are more of an financial decision. It would not be amiss to say right here that costs rely basically on market factors. Costs rely more on demand, provide and competition and less on costs. For instance, high demand coupled with lack of competition would mean that business might charge higher costs for its products, well above the costs.
The third area, namely management accounting, is carefully interrelated with costing accounting. Though it has advanced from value accounting, administration accounting has a broader function to play in management decisions. It measures economic performance of the business enterprise as an entire, vis-a-vis the economic surroundings in which the enterprise operates. This perform of accounting seeks to mix the monetary and cost 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 financial implications and penalties of their decisions. In economic phrases, it implies a detailed examine of money as an financial resource, while simultaneously treating it as a measure of economic performance. This enables management to measure it as an economic factor of production, e.g. the rate of return on capital employed.
It is thus seen that accounting has a distinct position to play in three different areas, which are equally vital. With the advent of computerised accounting, it has grow to be very easy for management to monitor the accounting info on the guidelines of its fingers. Monetary accounting programs enable financial statements and various value and MIS statements to be produced virtually immediately at push of a button. Now, only the laborious part of accounting is data entry. Financial managers must ensure that meaningful data is input into the system to produce meaningful information. Proper categorisation must be done and keying errors avoided at all costs, making certain providing accurate financial info to management.
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