Business NewsUnderstanding Management Accounting

Understanding Management Accounting


Management accounting is the management accounting process and the accounting system that is used to manage business operations. It is a set of procedures, standards and techniques used by managers to ensure that their business makes proper financial statements. It involves gathering, analyzing, summarizing and reporting data about a company’s operations. This information is then used in making decisions about products and processes for both internal and external use.

Management accounting is the application of accounting to the activities of managers and other supervisory personnel. Management accounting is concerned with the reporting, control, and analysis of the financial activities of a business unit, subdivision or enterprise.

The term management accounting is often used interchangeably with managerial accounting.

This branch of accounting focuses on the financial reporting of managerial activities to take better decisions on an organizational level. It can be viewed as an extension of cost accounting, which focuses on the analysis and recording of costs incurred by a business or organization. Management accountants focus on how these costs are used to generate revenues or profit, and how they can be used more efficiently.

What do the management accountants do?

Management accountants typically perform organizational analyses to determine how much value has been created by using resources effectively in order to meet goals such as profitability or growth. They also analyze costs by determining whether they are necessary for achieving these goals, what other alternatives exist for meeting them, and whether there are any areas where additional resources may be required in order to meet these goals without incurring excessive costs.

How is management accounting different from financial accounting?

Management accounting is often compared to the more common financial accounting (also known as record keeping) because it provides information that can be used to make managerial decisions. Financial accounting essentially refers to the traditional form of accounting where business transactions are recorded and converted in the form of reports.  Hence the key difference between management accounting and financial accounting is that the job of a financial accountant stops after preparing the reports whereas the management accountant’s job begins after the reports are prepared. That is because after the reports are prepared the management accountants will make important economic decisions based on these reports.

What role does cost accounting play?

Cost accounting is the process of summarizing the expenditures and costs a company incurs in its business operations and product creation and sales. Hence while there is undoubtedly a difference between cost accounting and management accounting and financial accounting, one could argue that cost accounting offers the fundamental information based on which financial accounting and management accounting is performed.

The data from cost accounting can be used for budgeting for the organizations, analyzing trends, identifying areas for cost savings through process improvements, preparing budgets and reports for senior management, determining how much money should be allocated toward various activities within the company and developing internal controls over these processes.

This is because it involves measuring performance, monitoring and controlling costs, identifying sources of profit, planning for growth and keeping an eye on competitors.

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