What is Management Accounting?

Strategic business decisions are made from the transformation of financial data into critical business operational reports by managerial accountants. Managerial accounting utilizes analysis tools, key performance indicators, and operational metrics to help a business achieve its goals. Management accountants can be found in government agencies, private businesses, and public corporations of all sizes. Their main directive is to analyze business information to advise on business strategy.

Managerial accounting, unlike financial accounting, is focused inward. A financial accountant is concerned with the reporting of the company’s financial statements for external use and a managerial accountant transforms that financial data to be used internally.

Seems like another boring, bean-counting job. It’s not! Your managerial accountants can help you determine how to price your product. They can devise a metric to determine when to order more units to maintain production and profitability. During the holidays, they can tell you how much of a bonus you can reward your employees with.

What are the Functions of Management Accounting?

Managerial accountants provide detailed information regarding the company’s operations by analyzing individual operational activities, product lines, service offerings, facility performance, etc. They work with your existing accounting and bookkeeping team. Management accountants will use financial tools to perform the following functions:

  • Forecasting Future Trends
  • Margin Analysis
  • Cash Flow Predictions
    • Analyzing the rate of return
  • Constraint Analysis
  • Budgeting
  • Risk Analysis

All of the above functions help a business pursue its goals by identifying, measuring, analyzing, interpreting and most importantly, communicating that information to managers.

What is a Management Accounting System?

Management accounting systems are any internally focused accounting system that provides information to management. It is often specific to the industry and sometimes the individual company.

To be effective, management accounting systems need to reach into every business segment: management, sales, finance, IT, marketing, HR, and operations. Types of systems include:

  • Inventory Management
  • Cost Accounting System
  • Job Costing System
  • Productivity by Headcount

Let’s think about all of the indicator lights on your cars’ dash. There is one for tire pressure, one for engine issues, one for oil, the list goes on. Think of a management accounting system as the tools that check your tire pressure, set the benchmark for the appropriate pressure, and then notify you when the pressure goes below that benchmark. You are the executive in this case and you are being informed from your managerial accountants and their systems that something is awry.

What is the Role of Management Accounting?

A managerial accountant will be crunching numbers for internal review to help companies’ budget and perform better. They can function like risk managers, budgeters, planners, strategists, and even decision makers. If we go back to our car indicator lights example, the role of management accounting is to inform you, the executive, to make decisions.

Managerial accountants can supervise lower-level accountants who handle a company’s basic accounting tasks. In a smaller firm, management accountants will record income and expenses, track tax liabilities, prepare the statement of cash flows, and other financial reports. After the accounting portion is complete, a management accountant will analyze the basic data and make forecasts and budgets, then present them to senior management.

The skill-set present in managerial accountants is like other accountants. It includes basic accounting, GAAP/IFRS, and tax principles. They also possess skills in communication, economics, writing, and presentation. They need to be able to see the big picture of their organization and present to it.

Final Thoughts on Managerial Accounting

Managerial accounting is a valued field in many industries of all sizes. It takes a great deal of time, information, and knowledge to be adept at it. It is not a position for your bookkeeper or your tax accountant. At CFOshare, we can act as your managerial accountant and inform, plan, and strategize for your business. Book an appointment now with our team to help ensure your business is gaining the insight it needs.




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