Accounting - three main areas

There are three main functional areas of accounting, which must be considered in accounting for any modern business. The three are financial, cost and management accounting.

The first area, ie financial accounts, is especially useful to verify the results of the activity on a periodic basis, for example, a year. This will help determine the future course of action in the long term. In economic terms, financial accounting considers money as a factor of production.

Cost accounting and management are tools that allow management to take decisions on a day to day. Cost and management accounting are not useful for themselves. These two functions assist management in running the business along with other key factors involved in managing the business. The key factors could be the demand, supply, competition, availability of raw materials, logistics etc.

The second area, that is, cost accounting, designed to ascertain the value of direct costs and indirect costs involved in production. From this value, management can make an informed decision on improvement of production performance. In economic terms, cost accounting is a measure of economic performance. This information provides a clear indication of economic management of production resources of the business.

Costing also helps the sales manager in setting prices. But since costs is a measure of economic performance, can not be considered as a basis for setting prices absolutely precise. This is because the selling prices are more than an economic decision. It would not hurt to remember that prices depend mainly on market factors. The prices depend more on supply, demand and competition and lower costs. For example, demand, combined with the lack of competition means that firms may pay higher prices for its products, much higher than the costs.

The third area, that is, management accounting, cost accounting is closely connected to. Although it has evolved from cost accounting, management control has a broader role in management decisions. It measures the economic performance of the company as a whole, vis-a-vis the economic environment in which the company operates. This function tries to combine accounting information and financial cost in a broader aspect.

Finally, management control is a tool to assist and advise the management in making important business decisions. It makes management aware of the economic implications and consequences of their decisions. In economic terms, involves a careful study of money as an economic resource at the same time treating it as a measure of economic performance. This allows management to measure as an economic factor of production, eg the rate of return on investment.

It is thus seen that accounting has a distinct role to play in three different areas, which are equally vital. With the advent of computerized records, it became very easy for management to monitor the accounting information on the tips of his fingers. Financial accounting programs allow the budget and the various statements of expenditure and MIS to be produced almost instantly at the touch of a button. Now, only the part of accounting is laborious data entry. Financial managers must ensure that relevant data are entered into the system to produce meaningful information. Proper classification must be done and typing errors avoided at all costs, ensuring that provide accurate financial information for management ....