What is Managerial Accounting?

Managerial accounting (management accounting) is the process of identifying, measuring, analyzing, interpreting, and communicating information in pursuit of an organization’s goals. It is an integral part of the of the management process. Managerial accountants are important strategic partners in an organization’s management team.

Role of managerial accounting was previously operated in a strictly staff capacity, usually physically separated from managers for whom they provided reports and information. Nowadays, managerial accountants serve as internal business consultants, working side-by-side in cross-functional teams with managers from all areas of organization.

An organization’s management team, on which managerial accountants play an integral role, seeks to create value for the organization by managing resources, activities, and people to achieve the organization’s goals effectively. The work of management team comprises four activities, which are decision making, planning, directing operational activities, and controlling. Managerial accountants will support all these activities with particular information needed.

Managerial accountants add values to an organization by pursuing five major objectives. First objective is providing information for decision making and planning, and proactively participating as part of the management team in the decision-making and planning process. Second objective is assisting managers in directing and controlling operational activities. Third objective is motivating managers and other employees toward organization’s goal. Fourth objective is measuring performance of activities, subunits, managers, and other employees toward the organization’s goal. Last objective is assessing organization’s competitive position and working with other to ensure long-run competitive in its industry.

There are some differences between managerial accounting and financial accounting. From user of information perspective, financial accounting is the use of accounting information for report parties outside the organization, including current and prospective share holders, lenders, investment analyst, and government agencies. Managerial accounting is the use of accounting information for members within the organization. Therefore, financial accounting is required to obey the regulation, such as GAAP (Generally Accepted Accounting Principles) while managerial accounting is not required to do this since it is intended only for managers.

Financial accounting draws almost exclusively data sources from organization basic accounting system which accumulates financial information. Managerial accounting draws broader data beside organization basic accounting system, such as rates of defective product manufactured, physical quantities of materal and labor used in production, or maybe average delays in particular airline. Financial accounting focuses on the global perspective of enterprise entirely, while managerial accounting reports more detail within organization, such as per departments, per divisions.

Managerial accounting continually evolves and adapts as the business environment changes. The growth of international competition and dramatic changes in technologhy are placing ever-greater moved away from a historical costaccounting perspective and toward a proacrive const management perpective. Under this approach, the managerial accountant is part of a cross-functional management team that seeks to create value for the organization by managing resources, activities, and people to achieve the organization’s goals.

 

Source : Hilton, R., 2010,  “Managerial Accounting, 8th Edition”. McGraw-Hill.

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