What Is Management Accounting and Its Functions?
Management accounting is the process of preparing reports about business operations that help managers make short-term and long-term decisions. It helps a business pursue its goals by identifying, measuring, analysing, interpreting and communicating information to managers.
What Is a Management Accounting System?
Internal management accounting systems are used to provide critical information to management to be used in operational business decision-making. A manufacturing company might use these systems to help in the costing and managing of their process. A hospital might use management accounting systems to assist them in insurance billing and other in-house requirements. These systems vary within the industries they are used and allow for functionalities and reports specific to that industry.
What Is the Role of Management Accounting?
Management accounting helps managers within a company make decisions. Also known as cost accounting, management accounting is the process of identifying, analysing, interpreting and communicating information to managers to help achieve business goals. The data collected encompasses all fields of accounting that inform the management of business operations relating to the costs of products or services purchased by the company. Management accountants use budgets to quantify the business’ plan of operations. Performance reports are used to note the deviation of actual results compared to what was budgeted.
How Managerial Accounting Works
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