What Is Management Accounting?

INTRODUCTION 

Discussed Topics

1. What Does Management Accounting Mean?

2. What is the definition of management accounting? 

Management accountants (also called managerial accountants) are tasked with looking at the events that occur in and around a business. These events are of course subject to the needs of the business. From this, accountants project data and estimates. 

Cost accounting refers to the process of projecting these estimates and data and preparing them for utilization. These data and estimates will ultimately be used to guide decision-making.

The main difference between financial and managerial accounting lies in an internal or external focus. Financial accounting focuses on creating and evaluating financial statements. These statements are reported externally, like creditors and investors. 

In contrast, managerial accounting analyses and results are kept internal for business leaders. Business leaders use these analyses to drive decision-making and run the company more effectively. Managerial accountants are concerned with many aspects of accounting. 

These include: 

1. Margins 

2. Constraints

3. Capital budgeting

4. Trends and 

5. Forecasting, valuation, and product costing

Let’s take a look at an example.

Mark Zuckerberg is the CEO of a small consulting firm. He wants to hire a management accountant and a financial accountant for his firm. He has come up with a list of job tasks. And, he needs to break them up into separate tasks. The tasks that will be performed by the managerial accountant and those that should be performed by the financial accountant will be mentioned separately. 

Here is the list of tasks that Zuckerberg has come up with:

1. Preparing cash flow statements

2. Income statement reporting

Managerial accounting, also known as cost accounting, is the collection of tasks. The tasks involve identifying, measuring, analyzing, interpreting, and communicating information. Managers for the pursuit of an organization’s goals utilize the information. 

The key difference between managerial and financial accounting involves managerial accounting information. The information can help managers within the organization make constructive decisions. On the other hand, financial accounting delivers information to parties outside the organization.

BREAKING DOWN ‘Managerial Accounting’

Managerial accounting includes all fields of accounting. These fields of accounting cover informing management of business operation metrics.

Managerial accountants use information that concerns the costs of products or services. The company usually purchases these services. Budgets are also extensively used as a quantitative expression that the business’s plan of operation. 

Individuals in managerial accounting project performance report on deriving note deviations of actual results from budgets.

MARGIN ANALYSIS

Managerial accounting handles margin analysis, which involves analyzing the incremental benefit attained by increased production.

Margin analysis follows breakeven analysis, which involves calculating the contribution margin on the sales mix. This determines the unit volume at which the business’s gross sales equal total expenditures. 

This information is calculated by managerial accountants to determine price points for products and services.

CONSTRAINT ANALYSIS 

Managerial accounting also deals with constraints. A production line or sales process is the result of constraint analysis. Managerial accountants take account of where principle bottlenecks occur. And, this calculates the impact of these constraints have profit, revenue, and cash flow.

CAPITAL BUDGETING 

Managerial accounting involves utilizing information that helps accountants make capital expenditure decisions. Managerial accountants take into consideration of standard capital budgeting metrics, such as net present value and internal rate of return. 

Capital budgeting assists decision-makers on whether to comply with capital-intensive projects or purchases. Managerial accounting involves examining proposals. The proposals will allow accountants to decide if the products or services are required. 

And, these proposals help accountants find the appropriate ways to finance the purchase. It also lets accountants be aware of payback periods. As a result, management is able to project future economic benefits.

TREND ANALYSIS AND FORECASTING 

Managerial accounting involves reviewing trendline costs. This allows accountants to investigate unusual variances or deviations. This field of accounting also utilizes previous period information to calculate and collect future financial information. 

This may encompass historical pricing, sales capacity, geographical locations, customer disposition, or fiscal information.

PRDOUCT COSTING: VALUATION 

Managerial accounting deals with determining the actual costs of products or services. Managerial accountants estimate and allot overhead charges to evaluate the factual expenses related to the manufacture of a product. 

The overhead expenses may be allocated derived from the number of goods created or other drivers related to the production, such as the square foot of the facility. In conjunction with overhead costs, managerial accountants take advantage of direct costs.

This allows accountants to properly assess the cost of goods sold and inventory that may be in different stages of production.

CAREERS IN MANAGEMENT ACCOUNTING

Management accountants find employment opportunities in a variety of work settings. Industries require skilled management accountants constantly. Professionals in this field are heavily sought after in public and private companies, nonprofit organizations, and public offices. 

Each company assigns specific job titles and responsibilities to their business model and needs.

DUTIES OF A MANAGEMENT ACCOUNTANT 

The primary duties of a management accountant vary. The job responsibilities and duties rely on an organization’s size, obedience and reporting requirements, and total income. 

SUMMARY

Management accountant professionals are sought after in order to manage accounting positions representing entry-, mid-and senior-level employment. Management accounting is a required subject for budgeting, calculating changes in stockholder equity, and preparing taxes for the organization

References:

1. https://www.investopedia.com/terms/m/managerialaccounting.asp
2. https://en.wikipedia.org/wiki/Management_accounting

Last Updated on January 23, 2022 by