What Is Managerial Accounting and How It Helps Managers?

Managerial accounting is the process of identifying, analyzing, interpreting and communicating information to managers to help managers make decisions ... Skiptocontent × FreshBooks OfficialApp Free-GooglePlay Getit LimitedTimeOffer60%Offfor6MonthsBuyNow&Save Only LimitedTimeOffer 0 0 Days : 0 0 Hours : 0 0 Minutes : 0 0 Seconds LefttoGet60%Offfor6MonthsBuyNow&Save 60%Offfor6MonthsBuyNow&Save AllArticles UKHub Accounting Taxes Startup Estimates Productivity Expenses Other Leadership Reports Invoicing Payments Marketing Insurance ProjectsManagement Finance 6Min.Read WhatisManagerialAccounting? Hub Accounting WhatisManagerialAccounting? Managerialaccountingistheprocessofidentifying,analyzing,interpretingandcommunicatinginformationtomanagerstohelpmanagersmakedecisionswithinacompanyandtohelpachievebusinessgoals. Thedatacollectedencompassesallfieldsofaccountingthatinformsthemanagementofbusinessoperationsrelatingtothecostsofproductsorservicespurchasedbythecompany.Managerialaccountantsusebudgetstoquantifythebusiness’planofoperations. Performancereportsareusedtonotethedeviationofactualresultscomparedwhatwasbudgeted. Thisarticlewillalsodiscuss: HowManagerialAccountingHelpsinDecisionMaking? 5TypesofManagerialAccountingThatAddValuetoYourBusiness WhatAreManagerialAccountingReports? NOTE:FreshBooksSupportteammembersarenotcertifiedincometaxoraccountingprofessionalsandcannotprovideadviceintheseareas,outsideofsupportingquestionsaboutFreshBooks.Ifyouneedincometaxadvicepleasecontactanaccountantinyourarea. HowManagerialAccountingHelpsinDecisionMaking? Managerialaccountingisveryeffectiveinhighlycompetitiveandfast-pacedbusinessenvironmentswherequickdecisionsneedtobemade.Thesedecisionsmighthavetodowithasalestactic,budgetingorcashflowmanagement.Managerialaccountingwilluseoperationaldatatomakesenseofthesituationquickly. Thegoalistousethebudgettohelpmakeshort-termoperationaldecisionsthatwillhelpincreasethecompany’soperationalefficiency. Let’ssayaninternetcompanysubscribestocloudcomputingservices.Monthlypricestorentoutspaceinthecloudhavebeenincreased.Theinternetcompany’smanagerscanusebudgetstoseeifthepriceincreasesarecostingtoomuchanddecidetoreducecostandincreaseoperationalefficiencies. Thecompanybudgets$100aweekforaccesstothecloudservicesandtheactualexpenditurefortheweekis$200.Managersknowthereisa100percentvariancebetweenbudgetsandactualcosts.Amanagerialaccountantwouldadvisetoincreasetheirexpectationsonpricesintheirbudgetormovetoanotherprovidertomeettheirbudgetcost. 5TypesofManagerialAccountingThatAddValuetoYourBusiness Managementaccountingpresentsyourfinancialinformationinawaythatwillbeusefulformakingoperationaldecisionsaboutyourcompany.Keepingyourfinancialrecordsuptodatewillhelpyouperformthefollowingmanagerialaccountingtasksthatwilladdvaluetoyourcompany. MARGINANALYSIS Managerialaccountinganalyzestheincrementalbenefitofincreasedproduction–thisiscalledmarginanalysis.Thisflowsintothebreakevenanalysis,whichinvolvescalculatingthecontributionmarginonthesalesmixtodeterminetheunitvolumeatwhichthebusiness’grosssalesequaltotalexpenditures.Amanagerialaccountantwillusethisinformationtodeterminethepricepointforproductsandservices. 2)CONSTRAINTANALYSIS Constraintanalysisindicatesthelimitationswithinasalesprocessorproductionline.Managerialaccountantsfindoutwheretheconstraintsoccurandcalculatetheimpactoncashflow,profitandrevenue. 3)CAPITALBUDGETING Managerialaccountantshelpabusinessdecidewhen,whereandhowmuchmoneytospendbasedonfinancialdata.Usingstandardcapitalbudgetingmetrics,suchasnetpresentvalueandinternalrateofreturn,tohelpdecisionmakersdecidewhethertoembarkoncostlyprojectsorpurchases. Theprocessinvolvesreviewingproposals,decidingifthereisademandforproductsorservices,andfindingtheappropriatewaytopayforthepurchase.Italsooutlinespaybackperiods,somanagementisabletoanticipatefuturecostsandbenefits. 4)TRENDANALYSIS/FORECASTING Reviewingthetrendlineforcertaincostsandinvestigatingunusualvariancesordeviationsisanimportantpartofmanagerialaccounting.Decisionsaremadebyusingpreviousinformationlikehistoricalpricing,salesvolumes,geographicallocation,customertrendsandfinancialdatatocalculateandprojectfuturefinancialsituations. 5)PRODUCTCOSTING/VALUATION Determiningtheactualcostsofproductsandservicesisanotherelementofmanagerialaccounting.Overheadchargesarecalculatedandallocatedtocomeupwiththeactualcostrelatedtotheproductionofaproduct.Theseoverheadexpensesmayincludethenumberofgoodsproducedorotherdriversrelatedtotheproduction,suchasthesquarefootofthefacility.Alongwithoverheadcosts,managerialaccountantsusedirectcoststoassessthecostofgoodssoldandinventorythatmaybeindifferentstagesofproduction. WhatAreManagerialAccountingReports? Managerialaccountingreportsusebudgetreportstohelpguidemanagerstoofferbetteremployeeincentives,cutcostsandrenegotiatetermswithvendorsandsuppliers. Hereareafewtypesofmanagerialreports. ACCOUNTRECEIVABLEAGINGREPORTS Doesyourbusinessrelyheavilyonextendingcredit?Thenanaccountreceivableagingreportisvitaltoyouroperations.Thisreportbreaksdowntheremainingbalancesofyourclientsintospecifictimeperiodsallowsmanagerstoidentifythedebtorsandidentifyissuesinthecompanycollectionprocess. Ifyourcompanyhasmanydebtors,youmayneedtoacompleterehaultotightenupcreditpoliciesascashflowiscriticaltotheoperationsofanybusiness.Acompanyshouldalwaysknowwhoowesthemwhat. PERFORMANCEREPORTS Theperformanceofawholecompany,eachdepartmentandeachemployeeareconsideredattheendofeachterminperformancereports.Thesereportsareusedtomakeimportantdecisionsaboutthecompany’sfuture.Under-performersaresometimesletgoandindividualswhoachieveorover-achievetheirgoalsarerewardedfortheircommitmenttothebusiness.Performancereportscanshowflawsinworkflowsetupsiflet’ssayforexampleawholedepartmentissomehownotperformingtoacertaincapacity.Aperformancereportisanimportanttooltostayontrackacompany’smission. CostManagerialAccountingReports Managerialaccountingdeterminesthecostsofarticlesthataremanufactured.Allrawmaterialcosts,overhead,laborandanyaddedcostsareconsidered,andthosetotalsaredividedbytheamountsofproductsproduced. Acostreportoffersasummaryofthisinformation.Thisreportoffersshowcasesthecostpricesofitemsversustheirsellingpricesformanagers.Usingthesereports,profitmarginsareestimatedandmonitored. Betteroptimizationofresourcescanbeachievedbyhavingthisunderstandingofallexpenses,includinginventorywaste,hourlylaborcosts,andoverheadcosts. OTHERMANAGERIALACCOUNTINGREPORTS Othermanagerialreportsthatarevitaltoeverybusinessincludeorderinformationreports,projectreports,competitoranalysisandmanyothersimilarreports. Thesereportsareeithercreatedinternallyoroutsourcedthroughprofessionalsdependinguponyourcompany’scapabilitytohandlereportingrequirements.Tomakethemostinformeddecisioncompaniesandmanagersmusthaveaccesstoauthenticdataandcrediblemanagerialaccountingreports. RELATEDARTICLES WhatAreProfitabilityRatios?Definition,Types&Importance CustomerProfitabilityAnalysis:Definition,Formula&How-toGuide WhatIsaGoodCurrentRatio? ProfitabilityIndex:Definition&Calculation AdvantagesandDisadvantagesofProfitabilityIndex SaveTimeBillingandGetPaid2xFasterWithFreshBooks TryFreshBooksFree ContactSales WantMoreHelpfulArticlesAboutRunningaBusiness? GetmoregreatcontentinyourInbox. 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