What is Management Accounting?

What is Management Accounting?

Management accounting is the process of measuring financial transactions, and also of analyzing and managing the stages of production through accounting.

The purpose of this type of accounting is for internal use by managers, so that the organization can achieve its goals, as well as define new ones.

This accounting allows budgets and special reports to be formed that present methods of analysis for managers.

Management Accounting Methods

For accountants, it is possible to use methods that identify accounting and financial data for presentation to managers, ranging from their analysis, to the formation of budget reports.

Margin analysis and forecasts

The analysis available to managers, by accountants, is what allows to visualize and predict what can be done in the company, as a way of improvement, or continuity of what is correct.

A margin analysis shows, in percentage, the additional benefit from the increase in production, as well as the efficiency of the contribution margin and analysis of the accounting breakeven point.

In order to analyze possible forecasts for production, it is possible to monitor the financial trends that the business follows, such as peak sales times.

It is also possible to monitor the stages in which costs and expenses are higher, and which may be the target of improvement interventions.

Cost analysis

Managerial accountants interpret, in different ways, the costs and expenses that the business reaches.

With this, price formation in the market or the acquisition of stocks, can reach more effective levels for the company.

Budgeting

In conjunction with the forecast analysis, it is possible for managers to obtain business plans that must be followed for each period.

The business budget serves as a “map” of all planning, which involves how much should be billed and how much can be consumed in each sector.

Differences between Management Accounting and Financial Accounting

Financial Accounting is standardized and done in accordance with the legislation and accounting principles. In addition, this document is intended for the public outside the company, such as investors.

With the formation of financial statements, in Financial Accounting, accountants express information for internal use that make up Management Accounting.

Therefore, the main difference between the two accounts is between the target audience, since the use of Management Accounting is only internal.

Objectives and purpose of Management Accounting

The management accountant uses the financial information of the company in a way interpreted with metrics for the operation of the business.

In this accounting, the same information as standard accounting, which generates statements for external users, can be used, as well as information that is useful for management decisions.

The objective is to provide managers with information more adjusted to the needs of the operation and the use of resources, as is also the case in cost accounting.

Cost accounting with Management

Another branch used in Management Accounting is cost accounting, which aims to identify information about the costs that are part of the activities.

In this model, accountants carry out cost identification processes, mainly by “apportionment” methods, which assist in making decisions regarding the use of resources.

When carrying out this type of accounting, the information can be displayed in different production costing methods, such as the Absorption Costing or the Activity Costing method, for example.

Importance of Management Accounting

Management Accounting allows company administrators to have information available to assist in the intervention of improvements or modifications to business processes.

Here, the accounting information is displayed, in greater detail, using metrics specific to the operation.

In addition, the preparation of the financial statements does not allow managers to carry out analyzes and interventions to reduce costs or increase revenues, for example, as is done by Management.