| There are three major functional areas in | | | | demand coupled with lack of competition would |
| accounting, which need to be considered in | | | | mean that business could charge higher prices for |
| modern day accounting for any business. The | | | | its products, well above the costs. |
| three are financial, cost and management | | | | The third area, namely management accounting, is |
| accounting. | | | | closely interrelated with costing accounting. |
| The first area, namely financial accounting, is | | | | Although it has evolved from cost accounting, |
| primarily useful for ascertaining the results of the | | | | management accounting has a broader role to |
| business on a periodical basis; for example, one | | | | play in management decisions. It measures |
| year. This will help to determine the future course | | | | economic performance of the business enterprise |
| of action in the long term. In economical terms, | | | | as a whole, vis-a-vis the economic environment in |
| financial accounting treats money as a factor of | | | | which the business operates. This function of |
| production. | | | | accounting seeks to combine the financial and cost |
| Cost and management accounting are tools to | | | | information in a broader aspect. |
| enable management to take decisions on a | | | | Finally, management accounting is instrumental in |
| day-to-day basis. Cost and management | | | | assisting and advising management in making |
| accounting are not useful for their own sake. | | | | important business decisions. It makes |
| These two functions assist management in the | | | | management aware of the economic implications |
| conduct of the business along with other key | | | | and consequences of their decisions. In economic |
| factors involved in running of the business. Key | | | | terms, it implies a close study of money as an |
| factors could be demand, supply, competition, | | | | economic resource, while simultaneously treating it |
| availability of raw material, logistics etc. | | | | as a measure of economic performance. This |
| The second area, namely cost accounting, seeks | | | | enables management to measure it as an |
| to ascertain the value of direct costs and indirect | | | | economic factor of production, e.g. the rate of |
| costs involved in production . From this value, | | | | return on capital employed. |
| management can make an informed decision | | | | It is thus seen that accounting has a distinct role |
| regarding the improvement of production | | | | to play in three different areas, which are equally |
| performance. In economic terms, cost accounting | | | | vital. With the advent of computerised accounting, |
| is a measure of economic performance. This | | | | it has become very easy for management to |
| information gives management a clear indication | | | | monitor the accounting information on the tips of |
| of economic performance of the production | | | | its fingers. Financial accounting programs enable |
| resources of the business. | | | | financial statements and various cost and MIS |
| Costing also helps the sales manager in setting | | | | statements to be produced almost instantly at |
| prices. But since costing is a measure of economic | | | | push of a button. Now, only the laborious part of |
| performance, it cannot be considered as an | | | | accounting is data entry. Financial managers must |
| absolutely accurate basis for setting prices. This is | | | | ensure that meaningful data is input into the |
| because selling prices are more of an economic | | | | system to produce meaningful information. Proper |
| decision. It would not be amiss to mention here | | | | categorisation must be done and keying errors |
| that prices depend basically on market factors. | | | | avoided at all costs, ensuring providing accurate |
| Prices depend more on demand, supply and | | | | financial information to management. |
| competition and less on costs. For example, high | | | | |