What is Managerial Accounting?

Managerial accounting involves elements of financial controls, cost accounting and management oversight. Managerial accountants create budgets, monitor spending, perform internal audits and measure financial project performances. The information they compile and disseminate is used by management and executives for internal decision making purposes.

Unique Cost Measurements

There are major differences between financial and managerial accounting, according to the American Institute of Certified Public Accountants’ (AICPA). The primary difference is that financial accounting data is geared for external users, but managerial accounting data is geared for internal users. Managerial accounting information is essential for strategic planning and operational decisions. Cost management focuses on job, activity, process and production costing measurements. For example, a company that employs workers to produce items will use managerial costing to accurately identify the materials and direct labor for specific jobs.

This is a challenge because companies that use continuous assembly lines want to avoid wasting time inefficiently tracking each produced unit. Managerial accounting addresses how to accurately allocate manufacturing overhead costs that are not directly related to end products. This includes things necessary to run the production process like facility rent, equipment and utilities. These cost measurements use income statement and balance sheets to analyze, understanding and managing cash flows. Managerial accounting is primarily used in certain industries, such as manufacturing and supply chain management.

Analysis Variations

Cost-volume-profit analysis helps management plan for profitability. This analytical technique answers questions regarding the breakeven levels of production and focuses on how to achieve profit objectives. This analysis model considers the relationship between costs, volume, and profit (CVP), which identifies how changes in variables impact financial projections and profitability. Differential analysis determines the cost and revenue differences for potential courses of action. Differential analysis uses contribution margin income statements.

Variance analysis uses actual results to adjust and improve the data used in managerial decisions. This is important because when actual sales differ from budgeted sales, performance should be evaluated by comparing the actual results to the master budget. If actual sales are higher than the master budget, variable costs must be adjusted higher. Thus, managerial accounting provides short- and long-term tools to alternatively evaluate costs and make management decisions.

Managerial Accountant

Managerial accountants support the record keeping and financial reporting functions of their organization by monitoring various business system functions. This includes payroll, reimbursement, revenue cycles and accounts payable. They are involved with centralized accounting practices, planning, analysis, controls, reporting, strategies and policies. Managerial accountants review financial transactions for projects, departments and production batches. They use financial information systems to prepare financial statements, company budget and performance reports.

Managerial accountants forecast longer term horizons and recommend methods for cutting costs. They assist accounting directors with internal audit and system improvement projects. They are usually members of corporate accounting teams, so they must have a strong knowledge of financial administration, account analysis and revenue cycle management. They need strong quantitative and analytical skills for the creation of financial models. They need to be competent with performing data analysis for senior and operational management.

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Managerial accounting involves internal reports for management decision making, accounting controls and accurate forecasts. Managerial accountants will need a bachelors in finance, economics or accounting. Most employers prefer senior accountants to have an MBA or CPA designation. Those seeking employment as managerial accounts will find a very financially stable and growing job market.