About Management Accounting
Management Accounting (also called managerial accounting) is the process of preparing management reports and accounts that provide accurate and timely financial and statistical information required by managers to make day-to-day and short-term decisions. The result of management accounting is periodic reports for the company’s department managers and CEO, for example.
Management accounting reports often include details of the company’s available cash, recent generation of sales revenues, the current state of the organization’s accounts payable and receivable, and more.
According to the Institute of Management Accountants (IMA): “Management accounting is a profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy”.
Managerial accounting encompasses all fields of accounting aimed at informing management of business operation metrics. Managerial accountants use information relating to the costs of products or services purchased by the company. Budgets are also extensively used as a quantitative expression of the business’s plan of operation. Individuals in managerial accounting utilize performance reports to note deviations of actual results from budgets.
The main difference between financial and managerial accounting is whether there is an internal or external focus. Financial accounting focuses on creating and evaluating financial statements that will be reported externally, like creditors and investors. In contrast, managerial accounting analyses and results are kept in-house for business leaders to use to drive decision-making and run the company more effectively. Managerial accountants handle many facets of accounting. These include margins, constraints, capital budgeting, trends and forecasting, valuation and product costing.
Focus:
- Financial accounting focuses on the company as a whole.
- Management accounting provides detailed and disaggregated information about products, individual activities, divisions, plants, operations and tasks.
The managerial accounting (or management accounting) topics needed for these calculations include – product vs. period costs, job order costing, process costing, and allocation of manufacturing overhead, costing of joint products, and more.
Other managerial accounting topics are more beneficial for planning and controlling a business and in helping management make financial decisions. These topics include:
- understanding cost behaviour and cost-volume-profit analysis
- operational budgeting and capital budgeting
- standard costing and variance analysis
- activity based costing
- pricing of individual products and services
- analyzing the profitability of product lines, customers, territories, etc.
The appropriate and relevant amounts for these topics will likely be unaudited, estimated, and future amounts. Management’s focus on these managerial accounting topics can make a difference in a company’s profitability.
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