What is Managerial or Management Accounting

Managerial or Management Accounting information is basically planned to meet the specific needs of a company™s management. Managerial accounting provides the information for fulfilling the objective of management. The information which is provided by the managerial accounting for the management is as follows:

  • Historical Data: it provides objective measures from past operations.
  • Estimated Data: estimated data means which provide subjective estimation about future decisions. Management needs and uses these both types of information in operating daily operations, planning future operations, and developing business strategies.

Financial accounting provide the information for preparing the financial statements, therefore the financial accounting has to follow certain principles for making the report. As managerial accounting does not provide information for preparing the financial statements so it does not need to prepare report according to generally accepted accounting principles as the management of company uses the information in many cases, GAAP are not relevant to the specific decision-making needs of management. And financial report prepared at fixed intervals (monthly, quarterly, yearly). Though some management reports are prepared at fixed intervals, but most reports are prepared as management needs the information. Moreover financial report prepared for the business as a whole. But management reports are prepared for products, projects, sales territories, or other segments of the company so the managerial accounting does not needs to follow the accounting principles.

During the daily operational activities of a business and in making plan for the future, a manager has to make various decisions. And for making these decisions most of the information is provided by managerial accounting. Managerial accounting provides many useful information among them some examples of managerial accounting information are described and illustrated are listed below.

Classifying the costs of manufacturing and other costs and reporting them in the financial statements:

  • Determine the cost of producing a product or providing a service.
  • Estimating the performance of costs for various levels of activity and evaluating the cost volume- profit relationships.
  • To make budgets planning for the future.
  • ‘ Evaluate production costs by comparing actual result with expected results.
  • ‘ Evaluating decentralized operations by comparing actual and budgeted costs as well as computing various measures of profitability.
  • Evaluating special decision-making situations by comparing differential revenues and costs and also evaluate alternative proposals for long-term investments in fixed assets.

Managerial Accounting in the Management Process:

Basically managerial accounting works as supporting department of management. There are 5 basic tasks of a management process:

  • 1. Planning
  • 2. Directing
  • 3. Controlling
  • 4. Improving
  • 5. Decision making

The five phases or segment of the management process are interrelated with each other and also interact with each other.

  • Planning segment of Management process apply planning in developing and achieving objectives of the company and transforming these objectives into courses of action.Planning could be categorized into two parts:
  1. Strategic planning: strategic planning refers that ‘ ‘ ‘ planning which is used for developing long-term actions to achieve the company™s objectives. These long-term actions are referred as strategies for any company. These strategies are generally included periods of 5 to 10 years.
  2. Operational planning: Operational planning are made or used to develop short-term actions for managing the day-to-day operations of the company.
  • Directing: directing is the process by which managers of any company run their day-to-day operational activities. The directing segment could be referred as a production supervisor™s efforts to keep the production line moving without any interruption. A credit manager™s development of guidelines for evaluating the ability of potential customers to pay their bills is also an example of directing.
  • Controlling: controlling involves the functions of monitoring operating results and comparing actual results with the expected results is. Controlling segment of management process permits management to separate areas for further investigation and for taking possible remedial action. It also sometimes leads to revising future plans. This viewpoint of controlling by comparing actual and expected results is called management by exception.
  • Improving: Feedback is also used by managers to support continuous process improvement. Continuous process improvement means continuous improvement of employees, business processes, and products. The objective of continuous improvement is to deliver the right products with right quantities at the right time.
  • Decision Making: Decision Making is applied to inherent each of the preceding management processes. In managing a company, management of the company must constantly decide among different actions. For example, in directing operations, managers must decide on an operating structure, training procedures, and staffing of day-to-day operations.






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