Management Accounting
As previously alluded to in our previous blog, there are different forms of accounting, one such form is managerial accounting. This blog will take a closer look at what this is.
What is Management Accounting?
Management accounting, also known as managerial accounting, is when organizational goals are created by identifying, measuring, analyzing, and interpreting information and then communicating all of that to the managers. This type of accounting differs from financial accounting, which focuses on the collection of accounting data in order to create financial statements. Instead, management accounting’s goal is to inform the management in regard to operational business metrics. Accountants who perform management accounting use performance reports to see the difference between budgets that were created and the actual spendings. As such, they use information that relates to the costs of products/services that were purchased by the entity to make conclusions.
What Is The Point of Management Accounting?
Other than the basics that have already been discussed there are several other functions of management accounting:
- Helping Forecast the Future: This is similar to what was alluded to previously, but because of management accounting, important questions can be answered that can in turn help forecast future trends within a business, such as if a company should invest in more equipment.
- Helping With Decision Making: This goes for both decision making at the operational and strategic level, and this is so because management accounting creates insights on cost and production availability which happen to be the deciding factors in purchasing decisions.
- Forecasting Cash Flows: Because management accounting involves creating budgets and trend charts which managers then use to help them decide how to allocate money and resources in order to generate the projected revenue growth, it directly influences the forecast of cash flows. It is very important for businesses to be able to estimate the cash flows and see their impacts by predicting the costs that the company will incur in the future and where its revenue will be coming from.
All in all, it is important to remember that managerial accountants perform a lot of tasks that include not just recording numbers and coming up with them, but they also help with things such as choosing and managing the investments of a company, managing risks, working on budgeting, planning, strategizing, and they help with making important decisions. In addition to this, it is not uncommon for managerial accountants to also be in charge of supervising the lower level accountants in bigger forms, or even doing the basic tasks of accounting themselves in small firms. These accountants are crucial to preparing the data that the company uses internally.
Sources:
https://www.freshbooks.com/hub/accounting/management-accounting
https://www.investopedia.com/articles/professionals/041713/what-management-accountants-do.asp