Advantages and Disadvantages of Management Accounting

Vinish Parikh September 23, 2012

Management accounting is another way of looking into accounting, it refers to use of financial accounting information by the top level management in order to make future business decisions of the company. Given below are some of the advantages and disadvantages of management accountancy –

Advantages

  1. Since it is focused on making future decisions with the help of past financial data, it is forward looking and therefore progressive in nature.
  2. It is meant for internal users like top management and therefore it is not necessary that it is made by following strict guidelines which is the case with financial accounting.
  3. It is flexible in nature and therefore it can be prepared anytime and they are not required to be made yearly they can be made monthly or on weekly basis.
  4. It takes all the data and then present it in such a way that a proper analysis about the feasibility and profitability of any business decision can be made.

Disadvantages

  1. It is dependent on cost accounting and financial accounts and therefore the accuracy of it is also dependent on how accurate that data is, hence it is one of the limitations as far as its usability is concerned.
  2. It is affected by the bias of top management and therefore it is likely that they may tweak it in such a way so as to benefit themselves rather than shareholders.
  3. Since it does not follow accounting principles, it cannot be compared with other company’s and hence proper evaluation about the management may not be possible on the basis of management accountancy.