The paper “ Management Accounting, Financial Accounting and Cost Accounting for the Optimal Decision-Making in Business" is an outstanding example of coursework on finance & accounting. Accounting systems take economic events and transactions, such as sales and materials purchases, and process the data into information helpful to managers, sales representatives, production supervisors, and others. Managers often need the information presented through accounting that can be used according to their purposes and uses. For example, a sales manager may require to know the total amount of revenues that can be used to determine the commission to be paid to the sales team.
A distribution manager as against may require to know the sales order quantities from different geographic locations to ensure timely delivery. Similarly, a manufacturing manager may be interested in knowing the quantities of various products and their expected demands and delivery dates to produce them accordingly. Three important accounting systems have been used by managers and other stakeholders of the company for their decision making choices namely Management accounting, financial accounting and cost accounting (Horngren et al. 2006). While Financial Accounting deals with reporting to external stakeholders, Management Accounting measures analyzes and reports financial and non-financial information that helps managers make decisions to achieve the goals of an organization (Horngren et al.
2006). Much management accounting information is financial in nature but has been organized in a manner relating directly to the decision on hand (Institute of Management Accountants, Inc, 2008). Cost Accounting provides information about the costs related to acquiring and using resources which is useful in financial and management accounting. Limitations of Financial Accounting: Financial accounting is concerned with the preparation of final accounts. The business has become so complex that mere final accounts are not sufficient in meeting financial needs.
Financial accounting is like a post-mortem report. At the most, it can reveal what has happened so far, but it can not exercise any control over the past happenings. The limitations of financial accounting are as follows: It records only quantitative information. It records only the historical cost. The impact of future uncertainties has no place in financial accounting (Decoster et al. 2007). It does not take into account price level changes. It provides information about the whole concern.
Product-wise, process-wise, department-wise or information of any other line of activity cannot be obtained separately from financial accounting. As there is no technique for comparing the actual performance with that of the budgeted targets, it is not possible to evaluate the performance of the business (Decoster et al. 2007). It does not tell about the optimum or otherwise of the quantum of profit made and does not provide the ways and means to increase the profits. In case of loss, whether loss can be reduced or converted into profit by means of cost control and cost reduction?
Financial accounting does not answer this question (Decoster et al. 2007). It does not reveal which departments are performing well? Which ones are incurring losses and how much is the loss in each case? It is not helpful to the management in taking strategic decisions like a replacement of assets, the introduction of new products, discontinuation of an existing line, expansion of capacity, etc. It provides ample scope for manipulation like overvaluation or undervaluation. This possibility of manipulation reduces reliability.