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Accounting - Three Major Areas
There are three major functional areas in accounting, which have to be considered in modern-day accounting for any business. The three are monetary, value and management accounting.
The primary area, namely financial accounting, is primarily helpful for ascertaining the outcomes of the enterprise on a periodical foundation; for example, one year. This will help to determine the longer term plan of action within the lengthy term. In economical phrases, monetary accounting treats money as a factor of production.
Price and management accounting are tools to enable administration to take selections on a day-to-day basis. Cost and management accounting should not useful for their own sake. These two features assist administration within the conduct of the enterprise along with different key factors involved in running of the business. Key factors might 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 worth, management can make an knowledgeable resolution regarding the improvement of production performance. In economic phrases, price accounting is a measure of economic performance. This information gives administration a clear indication of financial performance of the production resources of the business.
Costing also helps the sales manager in setting prices. But since costing is a measure of economic efficiency, it cannot be considered as a completely accurate foundation for setting prices. This is because selling prices are more of an financial decision. It could not be amiss to mention right here that costs depend basically on market factors. Prices rely more on demand, provide and competition and less on costs. For instance, high demand coupled with lack of competition would imply that enterprise may cost higher prices for its products, well above the costs.
The third space, namely administration accounting, is closely interrelated with costing accounting. Though it has advanced from cost accounting, administration accounting has a broader role to play in administration decisions. It measures financial efficiency of the enterprise enterprise as a whole, vis-a-vis the economic setting in which the enterprise operates. This operate of accounting seeks to combine the monetary and value data in a broader aspect.
Finally, management accounting is instrumental in aiding and advising administration in making vital enterprise decisions. It makes management aware of the economic implications and penalties of their decisions. In financial terms, it implies an in depth examine of money as an economic 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 is thus seen that accounting has a definite position to play in three totally different areas, which are equally vital. With the advent of computerised accounting, it has become very straightforward for administration to monitor the accounting info on the tips of its fingers. Monetary accounting programs enable financial statements and various value and MIS statements to be produced virtually 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 enter into the system to produce significant information. Proper categorisation should be executed and keying errors avoided at all costs, ensuring providing accurate financial data to management.
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