Accounting – The Three Main Functions Of Accounting
Author: Uchenna Ani-Okoye

There are three main functional areas of accounting which need
to be considered in modern day accountancy for any business. The
three areas are, cost, finance and management accounting.

The first area, financial accounting, is used mainly for
ascertaining the results of any such business on a periodic
basis, for i.e. 6 months. This should as a result; help the
company determine the future course of action, in the long term.
From an economic perspective, financial accounting treats money
as a factor of production.

Management and cost accounting are apparatus used to help
management make decisions on a day to day basis. Management and
cost accounting aren't useful simply for their own sake. These
two functions help management conduct themselves along with
other vital factors involved in the running of a business. Other
key factors could be supply, demand, competitors, availability
of raw materials, logistics etc.

The second area is cost accounting, its primary purpose is to
attain the value of direct and indirect costs involved in
production. From the value acquired, management can make an
informed decision on improvement in production performance. From
an economic perspective, cost accounting is the measurement of
economic performance. Thus, this information gives management a
clearer indication of the performance of the product resources
in the business.

Costing also helps the sales manage in setting the correct
price. But, because costing is solely a measurement of economic
performance, it can not be considered as an accurate basis for
setting prices. This is because selling prices is more of an
economic decision. It would not be wrong for me to mention that
pricing is basically determined by market factors. Prices are
influenced mainly by demand, supply and competition, less on
costs. For i.e. high demanded plus lack of competition would
result in the business charging higher prices for its product,
well above the costs.

The third area is management accounting, which is related
closely to cost accounting. Although it has essentially evolved
from cost accounting, management accounting plays a much broader
role in management decisions. It measures the performance,
economically, of the whole business, vis-à-vis the economic
environment that the business operates in. This area of
accounting, seeks to combine both financial and cost information
into a much broader function.

Lastly, management accounting, this area is instrumental in
advising and assisting management in making vitally important
business decisions. It essentially makes management more self
aware of the economic implications and consequences of decisions
made. From an economic perspective, it looks at the study of
money as an economic resource, while at the same time, treating
it as a measure of economic performance. This allows the
management to measure it as an economic factor of production,
for i.e. the rate of return on capital employment. You can find
more information and resource links on accounting by visiting:
http://www.insightempire.com/Accountingfordummies/

It is then seen that accounting plays a vital role in three
distinct areas, which are equally as important. With the advent
of computerised accounting, it has made it much easy for
management to monitor the accounting information. Financial
accounting software, allows you to make financial statements and
various cost and MIS statements almost instantly with just one
push of a button, the only laborious aspect of accounting is
data entry. A financial manager must bring it upon himself or
herself to make sure that meaningful data is input into the
system. Proper categorisation must be done and all key based
errors avoided, in order to ensure management is receiving
accurate financial information.


About The Author: Uchenna Ani-Okoye is an internet marketing
advisor and co founder of http://www.insightempire.com/ For more
information and resource links on accounting visit:
http://www.insightempire.com/Accountingfordummies/