Importance and utility of management accounting in economic activity

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management accounting
management accounting

Since the end of the nineteenth century and during the twentieth century, with the increase in the size of projects and the spread of the phenomenon of corporate mergers, with the increase of state intervention in the affairs of production and consumption, and with the great progress in technological means and the spread of new inventions and with the increase of competition between different enterprises to provide goods or services to satisfy the endless desires of individuals.

And the preservation of capital and its growth, and the constant search for new markets and with the increase in the external investor’s need for accounting data in order to direct his money towards profitable investments.

Accounting aims to achieve the following:

1. Recording the daily administrative operations when they occur directly, for reference when needed.

2. Classification and classification of these operations so that the facility can know its assets and liabilities.

3. Preparing the final accounts to know the outcome of the project in terms of profit or loss.

4. Investigating the causes that led to the loss and trying to avoid it in the future.

5. Preparing the financial position list (budget) to know the true assets and liabilities of the project.

6. Helping the administration in taking the right decisions by providing the administration with all the necessary administrative information.

7. Accounting is a tool for community service, through its statement of the adequacy of project management.

Importance and utility of managerial accounting in economic activity:

Accounting in any project, regardless of its form, an individual project, a company of persons, a public joint stock company, or a public institution that provides a service to multiple categories, including: –

1. Owners of ownership: – Accounting is concerned with measuring the outcome of the project’s activity, from profit or loss, and determining the financial position.

The owners of the project need to know the progress achieved by the establishment and the degree of effectiveness with which the project resources are used.

2. The administration The accounting provides the management with adequate information and reports that enable it to properly manage the day-to-day operations of the establishment.

For example, in projects with departments, the result of the work of each division can be determined separately, thus knowing the departments that achieve a loss and then making a decision to cancel this section if this is necessary.

3. Creditors and bondholders: The project’s creditors are interested in the financial position of the project to know its ability to repay.

Hence, banks, before granting credit facilities to their clients, ask them for complete information about the project, such as the budget in the last year, for study.

4. Income Tax Department: – Income tax is concerned with determining the project’s profits accurately so that it can calculate the tax due, but this does not happen unless the establishment maintains regular books and original accounts and after auditing the entity’s accounts by an auditor.

5. Financial analysts: – The financial analyst analyzes administrative information in order to provide advice and guidance to associations that request it, such as investors.

As a result of the occurrence of some economic and social factors, new signs and indications of development appeared in many areas, where accounting is one of these developments, and one of the reasons for the emergence of productive units is the industrial revolutions, which are investments that contain pumped capital and are usually joint-stock companies, and accounting is based.

To provide goals and service for the company, not only for the material side, but for the administrative side as well, and by providing detailed data for the company or project, this contributes to and helps the administrator in evaluating the project’s work, in addition to that many aspects are clarified to it through which expertise in research and development processes can be provided in addition To guidance in order to raise the profile of the project.

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