Importance of Accounting in Management Decision Making

Importance of Accounting in Business OrganizationTo run a business you need data, records, reports, analysis, accurate information about assets, debts, liabilities, profits; and that is why Accounting is Importance for any business activities.

The accounting information is very important for the management or the decision making body of an organization. Management cannot make decision without reasonable information’s for backing it up.

To make a decision, it has to be based on genuine facts and figures. For making decision at every level of management, information is crucial.

Accounting gives the management the information regarding the financial position of the business, such as; profit and loss, cost and earnings, liabilities and assets, etc.

That is why importance of accounting in business is very large.

For making the right decision, Management depends on statistical data and information that accounting provides.

The main object of Accounting is to record financial transactions 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 results as per plan etc. are the main functions of Accounting.

In the modem age Accounting is directly related with financial management.

Due to entity concept and management, joint stock Company, developed means of communication and international business etc. scopes of business have so much expanded that the management is to depend on various accounting data and information for taking various decisions.

Accounting prevents the misuse of assets, increases production and profit, controls costs and helps increase efficiency of the overall management.

The role of management is very important in the overall development of a business organization.

The functions of management are planning, organizing, collecting business elements, motivating, coordinating, controlling and budgeting etc. Successful completion of these functions of management depends on an efficient accounting system.

Accounting is a continuous system that shows the financial position of an business entity by identifying the economic events and recording, analyzing and presenting them.

Accounting gives the information about the economic entity’s financial position.

Importance of Accounting in parts of Business are described below;

Importance of Accounting in Planning

Proper planning is very much needed for successful completion of various management activities.

This planning’s cash planning, sales planning, procurement planning, determining quantity of stock, development planning, fixing up target-profit etc. are very much dependent on accounting data and information.

Accounting Importance in Organization

Accounting plays a very vital role in proper execution of the important functions of management-organization.

Accounting helps management-organization by providing information like percentage of profit over capital, capital investment position, management efficiency in controlling etc.

Accounting Importance for Motivation

Labor-employees are to be motivated for achieving expected performance. Financial reward 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 decisions.

Accounting Importance for Co-ordination

One of the main functions of 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 departments of the business.

It also helps the management in adjustment of purchase with sales, expenditure with income, sales with debt receivable realization etc. to a great extent.

Accounting Importance in Control

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

Accounting Importance Media of Communication

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

For instance, in the modem age; Accounting is regarded as the best media of communication in supplying information to management regarding purchase and stock, time of purchase, cost of purchase and sales price etc.

Besides, the function of Accounting is to collect and provide information about business to various interested parties.

Accounting Importance in Budgeting

Preparation of various budgets is essential to run the business successfully. The historical information which is needed in preparation of budget is supplied by Accounting.

Accounting Importance in Professional Advice

An efficient and honest accountant helps the management with valuable professional advice for the development of its business. In the modem age with the complexities of business management has also become complex.

In this aspect the role of accounting is very important. The efficiency of management depends on the efficient use of accounting data and information. In the developed countries accountants are regarded as efficient and successful managers.

In the modem age, in big organizations accountants are included in the management committee. It can be said that Accounting and Management are interdependent. Accounting is an essential tool of management.

Management is universal. It is required at every step of an organization. And accounting information is very required for the management. Accounting aids management in planning, organization, motivation, coordination control, budgeting.

Accounting delivers the financial and economic information that an organization managing process is needed. Management is the internal user of the accounting information.

It this competitive business world management has to be swift and dexterous in its decision making.

Accounting gives the information that enables the management to make the important decisions for the business. Accounting is an important tool for the management as it’s regarded as the “Language of Business”.