Why is accounting regarded as an aid to management?

Answer 1

Accounting as an Aid to Management

Accounting as

an aid to management:

The main object of Accounting is to record financial transaction systematically in the books of accounts and to find out profit-loss and financial position of a business. Ascertainment of profit-loss and financial position, interpretation and analysis of accounts and statements, development of accounting system, collection of statistical and economic data, formulation of financial principles and financial planning and controlling result as per plan etc. are the main function of accounting. In the modern age accounting is directly related with financial management. The function of management are planning, organizing, collecting business elements, motivating, coordinating and budgeting etc.

Accounting helps the management in the following ways:

(1)Planning:

Proper planning is very much needed for successful completion of various management activities. These planning – cash planning, sales planning, procurement planning, determining quantity of stock, development of planning, fixing up target – profit et are very much dependent on accounting data and information.

(2)Organization:

Accounting plays a very vital role in proper execution of the important function of management-organization. Accounting helps management-organization by providing information likepercentage

of profit over capital, capitalinvestment

position, management efficie3ncy in controlling etc.

(3)Motivation:

Labor-employees are to be motivated for achieving expectedperformance

. Financial help is one of the main motivating factors of work. The management is to be aware of financial position of the business for providing financial benefits. Accounting helps the management by providing necessary information for taking proper decision.

(4)Co-ordination:One of the main function of the management is to achieve the final target of the business by coordinating various activities of different departments. Accounting helps in coordinating various activities of different department of the business.

(5)Control:

The main function of the modern management are planning and controlling. Controlling is essential for completion of activities according to plan. Accounting can help management much in controlling.

(6)Preparation of final accounts:

The management’s responsibility is to communicate operating results for a certain period and financial position of a business concern to the owners and parties concerned.

(7)Media of communication:

Accounting plays a vital role as a media in communicating various information of different departments,business and management

plan of action to various departments.

(8)Budgeting:

Preparation of various budgets is essential to run the business successfully. Thehistorical information

which is needed in preparation of budget is supplied by accounting.

(9)Professional advice:

An efficient and honest accountant helps the management with valuable professional advice for the development of its business. In the modern age with the complexities ofbusiness management

has also become complex. In this aspect the role of accounting is very important. Accounting is an essential tool of management.