What is management accounting information? | strange (2023)

Many small business owners find bookkeeping a chore that reduces the time they could spend on more interesting and fulfilling activities, such as writing books. B. the development of new products or interaction with customers. However, some accounting tasks provide interesting and relevant information that can make a business more effective and efficient, and make the time available for work more enjoyable.

Managerial Accounting uses financial accounting reports for planning and decision making, helping you make informed strategic decisions that will make your business a better and smarter business.


Manager accounting information is the collection of reports and data that managers use to make financial decisions.

(Video) What is Management Accounting?

Financial accounting vs. operational accounting

Many accounting jobs are designed to collect the documentation and reports that your company needs to make available to outside agencies and interested parties. Government agencies require you to fill out tax forms and submit taxes based on financial accounting information. Banks require you to provide financial reports when you apply for a loan and later when they monitor your fiscal health throughout the life of a loan. Shareholders and investors are entitled to regular financial information that informs them of the impact of their investments.

In contrast, business accountingprepares financial information for internal use,specifically for management decisions and strategic plans. This information can include anything your managers find relevant or interesting, and anything that sheds an objective light on how your business operates and its potential to increase profitability. This extra layer of relevance and usefulness can turn operational accounting headaches into a boon.

The financial accounting is based ongenerally accepted accounting principlesthat ensure a degree of rigor and consistency across industries and within individual companies. Management accounting information involves some of the same reporting as financial accounting, but management accounting measurement and reporting rules only need to meet your internal standards for accuracy and usefulness, as these figures are typically only reviewed and used by their own team.

Management accounting and annual accounts

Statements compiled for financial accounting provide easy-to-select rewards for collecting management accounting information. Your accounting team has already prepared these numbers for external agencies, but you can use the same information for internal purposes as well.

(Video) FINANCIAL vs MANAGERIAL Accounting

  • Win and loss.Your income statement shows how much your business made during a specific period, e.g. B. a month, quarter or year, has earned and spent. Financial accounting must prepare these declarations for income tax returns and reporting to other external bodies. These statements are also useful for operational accounting as they show your gross and net margins and show where your business needs to cut costs or increase revenue.
  • balance sheet.Your balance sheet shows how much your company owns, how much it owes, and how those assets and liabilities are distributed. Corporate tax forms require you to submit balance sheets, and banks and investors are particularly interested in balance sheet information as it provides valuable insight into the financial health of your company. Internal accounting can use the same information to plan when determining whether you need to pay off debt faster or need access to more cash.
  • cash flow statement.This financial document represents your company's liquidity and shows whether you have sufficient capital to cover ongoing operating costs and external financial obligations. Lenders and investors consider it a key piece of the puzzle that reveals the overall financial health of your business. This statement is also invaluable for management accounting as it explains how much financing your business may need and when it would be prudent to cut costs.

understand cost accounting

Cost accounting falls within the domain of business accounting, although for external purposes it is largely irrelevant to financial accounting. This management accounting information provides indispensable insight into how much it costs your company to produce or deliver your various products and services, and which ones generate the most profit.

The cost accounting is closely relatedcost of goods sold, a line on your income statement that reflects how much you actually spent creating your offerings compared to other infrastructure costs associated with running your business. The manufacturing costs are then used for the calculationGross margin, or the percentage of your sales that remains after deducting these direct operating costs. While cost of goods sold and gross margin provide valuable information for management accounting, these numbers represent rough averages only.

To assess and improve profitability, your business can also break down the cost of each of your products or services, specifically the direct labor and material costs required to provide them. If your company makes shoes, this exercise will show you which of the designs you offer cost the most to manufacture and which generate the most profit. This information can help you make strategic decisions, e.g. B. Aggressively promoting the most profitable design and phasing out the one with the lowest net income.

Understand productivity numbers

As part of your management accounting efforts, your company may also collect information about the productivity of your production systems. The specifics of collecting this data may be unique to each company, but the general idea is the same:Rate the time it takes to complete a task versus a specific outcomethan the number of units produced. Like cost accounting, productivity numbers can tell you which of your offerings are revenue streams and which are putting pressure on your margins.

(Video) What is Management Accounting? - Ep. #1 - Your Career. Your Story.

Productivity data can also help you improve efficiency by providing objective information about how long it takes to produce a batch of products and what variables affect that productivity. It may seem like your manufacturing department is running efficiently because you're always getting your job done, but when you start comparing hours to production, you may find that you're costing too much and too much of your labor costs for one output specific job manufacturing process.

Management accounting allows you to improve productivity by looking at the impact of changes that may seem insignificant but can have far-reaching consequences. Production data tracking helps you to find the optimal number of employees in production and the optimal lot size for production before production starts to falter or become bottlenecked. The additional time spent collecting this data can easily be offset by the time saved by implementing changes based on your observations.

Understand sales data

Tax authorities care about your sales totals as a basis for their tax reports, but they don't really care what's selling, who's buying, and where their sales are strongest. However, this information has far-reaching consequences for the earning power of your company.

When you can identify your strongest sellers and understand why they are so successful, you have useful information to increase sales and ultimately improve your bottom line. FromTrack sales by product over time and location, you can see the seasonal variations, unexpected increases, and changes happening at different selling locations.

Of course, the usefulness of this information depends on your controlling team's ability to make connections with internal and external events and then test these theories. You may find that a particular product sells particularly well on sunny days, but it might also be reasonable to conclude that this product sells well to tourists and that there are more tourists in the city during the sunnier season. You can test these conclusions by analyzing sales data for sunny days during the off-season and also for rainy days during the peak season.

(Video) Module 1 - Introduction to Management Accounting - Video 1

Internal accounting can also provide useful sales information by evaluating the number of different team members. Some of your sales reps may have consistently stronger numbers than others, and these discrepancies may be due to the different shifts they work, the different areas they cover, or their different personalities or levels of enthusiasm. You can test hypotheses by rotating team members between locations, and you can also use sales data to create reasonable expectations or benchmarks for daily or monthly sales.

About financial planning

The general ledger cash flow statement provides details of your current cash position, but operational accounting is the primary source of information for projecting into the future and anticipating and addressing cash shortages. TOProforma-CashflowIt is a valuable tool to predict when you will run out of money and how much and when you will have extra funds to spend and save.

A pro forma cash flow or projection,lists all available funding sources, including leftover funds from previous accounting periods, income from sources such as retail and wholesale sales, and borrowings you may take out during the upcoming period. In a separate section, it also lists all your outgoing expenses, such as: B. rent, production material, vehicle costs, ancillary costs and loan capital and interest. By subtracting the cash outflows received each month, you can see when you're headed for a liquidity crunch.

Controlling uses this information as a basis for securing financing. By looking at the amount of deficit you'll incur at the bottom of your annual cycle, you can see how much you're likely to have to borrow. Alternatively, you can use the information on your cash flow pro forma to pinpoint a good time to ramp up sales to increase revenue or cut expenses to free up more funds.

(Video) Introduction to Cost and Management Accounting, Accounting Step-by-Step by Mike Werner

Manage the growth of your business

Management accounting information can also provide the basis for evaluating how and when to expand your business. All revenue, cost and cash data received feeds into these investigations, which also depend on your management team's ability to understand and process the available numbers to make successful calls. Just because your business needs more money doesn't necessarily mean you should invest in a new product or market. You may not have enough capital to accommodate this change, or you may not yet understand exactly what your customers want or need.

To use management accounting information for growth planning, you mustCollect data from different areas of your companyto provide the background you need to make decisions. You should also research potential markets and costs to get the best possible estimate of how your new ventures can pay for themselves and in what time frame.

Of course, there is no way to predict with absolute accuracy the sales of a new product in a new market. However, if you understand your company's past performance and current cost trends, you can use this information to make informed predictions for future projects.


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