What is Managerial Accounting?
Managerial accounting is the practice of identifying, measuring, analyzing, interpreting, and communicating financial information to managers for the pursuit of an organization's goals. It varies from financial accounting, because the intended purpose of managerial accounting is to assist users internal to the company in making well-informed business decisions.
- Managerial accounting involves the presentation of financial information for internal purposes to be used by management in making key business decisions.
- Techniques used by managerial accountants are not dictated by accounting standards, unlike financial accounting.
- The presentation of managerial accounting data can be modified to meet the specific needs of its end user.
- Managerial accounting encompasses many facets of accounting, including product costing, budgeting, forecasting, and various financial analysis.
How Managerial Accounting is Used
Managerial accounting encompasses many facets of accounting aimed at improving the quality of information delivered to management about business operation metrics. Managerial accountants use information relating to the cost and sales revenue of goods and services generated by the company. Cost accounting is a large subset of managerial accounting that specifically focuses on capturing a company's total costs of production by assessing the variable costs of each step of production, as well as fixed costs. It allows businesses to identify and reduce unnecessary spending and maximize profits.
Types of Managerial Accounting
- Product Costing and Valuation
- Cash Flow Analysis
- Inventory Turnover Analysis
- Constraint Analysis
- Financial Leverage Metrics
- Accounts Receivable (AR) Management
- Budgeting, Trend Analysis, and Forecasting