The Essential Role of Accounting in Decision Making and Performance Evaluation

Discuss about the Article for Accounting for Business Managers.

Accounting remains known as a business language since it supports decision making as well as management. A great amount of information is communicated by accounting to business owners, managers as well as investors which are helpful in the evaluation of any sound financial performance (Avazzadehfath & Raiashekar, 2012, p.56). It is always conveys messages regarding the information that is needed by the managers, owners as well as investors in the estimation of performance of a business. Managers, investors as well as owners are key stakeholders who are all interested as well as engaged in the activities of a business and are greatly affected by the every business operation. Accounting offers financial information to every stakeholder which is helpful in making effective decisions.

It is evident that no person will attempt to establish a firm or invest without acquiring the necessary information of finance. Consequently, it is the responsibility of an accountant to fail not to prepare every information, but to ensure that stakeholders would understand such a financial information for both folk individual as well as organizations can utilize the information to address the problems of a business. Evidence has shown that accounting information is essential in helping firms to make effective decisions. Accounting provides strategic tools which helps the organization to build a competitive advantage.  The role played by management accounting remains fundamental in organizations in the contemporary business operations. The controller is the top accountant in the organizations. Every decision maker in the organization has to understand how to establish and utilize good management accounting information.

Management accounting helps managers to track performance information which surpass the historic general ledger system cost-oriented information. An effective management accounting embraces a responsibility to manage a broad array of critical information in the organization. Managers have to anticipate as well as remain prepared to face various ethical dilemmas. Accounting supports the competitive decision making in the organization by gathering, processing as well as conveying helpful information for management plan, control as well as evaluating business processes as well as the strategies of the company. Accounting is essential to stakeholders in making decisions through the provision of financial information, conveying the outcomes to management as well as other key decision makers in the organization. Accounting encompasses measuring as well as summarizing activities of businesses.

Accounting also helps in interpreting financial information to the managers to make effective decisions in the organizations. An organization cannot operate or make any rational investment decisions unless there is accurate, and timely financial information. All these information can only be prepared and communicated to the management by the accountants (Polillo, 2013, p.52). Accountant communicate the meaning of every financial information as well as work in conjunction to other individuals alongside organizations to assist them utilize the financial information to address the challenges of businesses. Accounting easily get numbers which has been facilitated by the introduction of computers.

Importance of Financial Information for Stakeholders

The accountants analyze, interpret as well communicate the information which is the main challenge that affects managers. Accounting helps analyze, interpret and communicate the information to the managers clearly while at the same time interacting effectively with individuals from every business disciple for an inclusive decision making. Owners of the businesses are interested in accounting information given by the financial statements which remain the key report cards for both managers and owners. Managers and owner use this information to determine whether or not a firm generated profits to furnish additional information on the financial status of the business.

Accounting also provides financial information which are useful to both owners and managers to decide on corrective action where required. Investors as well as creditors are also interested in the financial information a given business. Both investors and creditors offer the company with the funds required to undertake their operations. Accordingly, they are interested in knowing the how their investment in the business is doing and can only get such an information by studying financial statements. Through the financial statements generated by accountants in organizations, investors and creditors can assess the performance of the company to make decisions regarding ongoing investment.

Investors and creditors are aware of the impossibility of making any smart investments alongside loan decisions in the absence of accurate report on financial health of organizations. Firms are required by the government agencies to display financial information for effective decision making processes (Mundell, 2004, p.42). Contemporary business environment has altered drastically in recent time. With the introduction of business technology, business operations as well as operations have escalated beyond imagination. Accounting and businesses’ roles are reliable functions in any business since accounting methods as well as procedures have changed in the past few years. Accountant generate information that help in forecasting the future and make manager make decisions on how to operate.

A manager has to ensure that it makes consistent profits to appeal to the shareholders. Information on how this is done are only produced by accountants and hence, all decisions about the performance of the firm must originate from accounting information (Kuchta & Sukpen, 2012, p.49). Managerial accounting provides managers with the data-generated input to make decisions that can improved the process of decision making over a long period. Managerial accounting remains a powerful tool that is leveraged by the managers to assist businesses operate more successful through the understanding the management accounting benefits common decision settings (Zager & Zager, 2006, p.87). Accounting provides relevant cost analysis which is used by the businesses management in determining the amount of goods to be sold and how to undertake sales. Managers will determine markets to focus on by examining the cost which differ between advertising options for individual products while neglecting common cost.

Role of Management Accounting in Organizations

The relevant cost analysis is helpful in determining whether a firm can add product lines or discontinue operations (Mundell, 2004, p.76). Accountants also provide information on activity-oriented costing techniques that help businesses in the determination of whom to sell their products. Information generated through this process helps firms determine particular activities needed to generate as well as service a particular product line.  The cost of customers are also embedded on this information and hence managers can use it to decide which customers are profitable which permits owners to focus marketing towards profitable consumers.

Accounting also provide relevant information through make or buy analysis which a primary utilization of managerial accounting information of providing information utilized in manufacturing (Hiebl, & Feldbauer-Durstmüller, 2012, p.43). Make or buy analysis provides business managers with the technique to determine which choice is profitable. Managerial accounting also provides firms with useful information which display a data-oriented look at how to grow businesses. Managerial accounting provide information useful for budgeting, balanced scorecards and financial statement projections that provide information to assist management guide firms’ future.

Managers will benefit from this data to make decisions which aims at ongoing enhancement as well as justifiable depending on intelligent analysis of businesses’ data rather than gut feelings (Stonciuviene,  Zinkeviciene & Martirosianiene, 2016,p.60). The concept of measuring money posits that a firm can solely record accounting transactions that are expressible in money form (Lexa, Mehta & Seidmann, 2005, p.47). Accounting transactions is purely quantitative information instead of qualitative information. Money needs to be measured at its present and future value of money to help managers to contribute highest value decisions to every business stakeholders. The market price will also be helpful in measuring money which can give a proper display the highest value decisions to every stakeholder.

All the stakeholders including business owners, shareholders and investors must have a proper depiction of money so that they know how their investment in the business is performing. Money value is affected by which means that it loses values with time. It is, therefore, effective that all times, the measurement of money should depict its real value. A firm that ensures that the real value of money is depicted in its financial statements attracts the confidence from all stakeholders (Breuer, Frumusanu & Manciu, 2013, p.59). Stakeholders need to benefit from their investment and expects that business should be honest when reporting its financial position. Accordingly, measuring the money at market price will ensure that the time effect is factored in to make stakeholders know real value of their investments in a given business.

Benefits of Strategic Management Accounting

In conclusion, Operational Accounting Information helps businesses which needs to operate its day-to-day activities efficiently to ensure its continuity. The employee remuneration is also an important part of the business for continuous motivation of employees (Tout et al., 2014, p.45). The business or entity is interested in it sales record, the credits and debits, the money needed for day-to-day operation (transactional motive). Accounting as a language of money, thus, provides operational information that is composed of greatest accounting information amounts. It also provides an ample base for other accounting information (Besharat, 2012, p.67). Management Accounting Information are helpful in managing a business when decisions are being made.

Managers would always require some information that is prepared that would facilitate their decision for the well-being of the company. This information needed would be vital for the managers to make their plans, implement these plans and thus, take control. Financial Accounting Information provide financial information is used to set budgets, analyze different options on a cost basis, modify plans as the need arises, and control and monitor the work that is being done (Al Khoury et al. 2014, p.34). This is the information that is used by managers, shareholders, banks, creditors, the government, and the public.

References

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