An Introduction to Managerial Accounting

managerial accounting
Managerial accounting

This is a blog post by Richard Jacobs

Every Organization has an accounting system responsible to prepare financial reports for external and internal purposes. Accounting statements, financial data and documents prepared for external users, stakeholders including tax authorities, lenders etc. come under the category of Financial Accounting. These accounts are mandatory to be prepared quarterly, annually or as required by the statute in accordance with the Generally Accepted Accounting Principles (GAAP). Financial Accounting involves over the year comparison, trends and financial analysis of authentic and audited historical figures.

What is Managerial Accounting?

Accounting financials and reports prepared for internal purposes, particularly for the prevailing management for better decision making is referred to as Managerial Accounting. These reports may be prepared as and when required by the management of the Company, and are not necessarily in accordance with the Generally Accepted Accounting Principles. Such reports basically involve reporting of various departments, regions and segments of the organization. Reports may be prepared according to various geographical locations for comparison purposes and the calculation of favourable and unfavorable variances and how to fill the gap.

In order to stay competitive in the modern world, every company, whether large or small, has managers who play the role of planning departments. Planning analysts plays a vital role in the preparation of managerial reporting. Some of the reports in managerial accounting may include region or product wise profitability both in financial and non financial terms, customer reports including customer wise profitability or list of quantity sold to individual customers, overhead cost compared to number of working heads in the organization, raw material detail, production reports, capacity utilization, backlogs of all sorts including fleet and vehicle detail, CAPEX and fixed assets detail, debtors ageing and overdue balances, preparation of quarterly or annual budgets and regular monitoring of these budgets. Apart from these, managerial account reports also include detail of sales target achieved and calculation of annual bonus, sensitivity analysis, pricing and any other sort of forecasts prepared or required by the management.

Management accounting is also referred to as Cost Accounting. This form of accounting not only shows the overall efficiency of the management but also enables to highlight areas of improvements, resulting in key decision making for the benefit and future of the organization in all respects. As compared to financial accounting, cost or management accounting is a very detailed form of accounting that enables management to plan, monitor, direct, motivate and control the operations and eventually the overall cycle and way things are run in an organization.

Financial Accounting vs. Managerial Accounting

As compared to financial accounting, there is no mandatory or legal obligation for the preparation of management accounting. The preparation of such reports and its users are solely individuals within the organization. The aim is to provide managers all sorts of information that may be necessary for day to day decision making that helps streamline business operations and contributes in better strategic decisions. Other than this, there are no official regulatory procedures which companies have to follow to prepare managerial accounts, as is the case with financial accounts which have to follow Generally Accepted Accounting Principles (GAAPs).

Author Bio

Richard Jacobs is a chief editor since early 2007, and he currently works for MyDUIAttorney. A webiste that helps you to find the right DUI lawyer, you can search for a New Jersey DUI Lawyer or for Maryland DUI Attorney online, anytime!

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