Management accounting, also known as managerial accounting, is a type of accounting that focuses on providing financial analysis of a business’ performance and reporting to internal stakeholders in an organisation to help its leaders and managers better understand the business’ performance and make more informed decisions about the business.
The information and reports provided by managerial accountants are usually financial in nature. Below are examples of management accounting techniques.
Budgeting involves creating a plan for the future financial performance of an organisation and allocating resources accordingly.
When conducting a variance analysis, managerial accountants compare actual performance versus the budgeted or forecasted performance and produce reports to determine positive and negative deviations from a budget, referred to as budget-to-actual variances. Variance analysis helps to identify reasons for the variances and helps managers make changes in the budget or operations for the future.
Forecasting involves using historical data, seasonal information, or data specific to certain events, to predict and create estimates about the future financial performance of the business.
Cost-benefit analysis involves evaluating the costs and benefits of a proposed project or investment to determine whether it makes sense from a financial perspective. This often includes elements like return on investment (ROI) calculations, depreciation analysis, or calculations on the lifetime value of a prospective client.
Product costing breaks down the variable, fixed, direct and indirect costs involved in the production of goods or services to determine the total costs involved. This process helps business leaders assign overhead costs to products and operations, and identifies areas where costs can be reduced and saved to improve efficiency.
Marginal costing, also called cost-volume-profit analysis, calculates the impact of adding additional units into production on the cost of a product.
Cash flow analysis looks at the cash that flows in and out of a company, determining incoming revenue streams and business expenses. Cash flow analysis is an important type of managerial accounting because it provides insights into a business’ financial health and helps inform the cash impact of business decisions.
Inventory turnover calculates how many times inventory is sold and replenished within a time period. Inventory turnover analysis helps businesses understand which products are best sellers and in high demand. This allows businesses to make better decisions on pricing, manufacturing, marketing and ordering new stock, including order quantities, and helps them build better relationships with suppliers and manufacturers.
Constraint analysis involves reviewing the constraints within a production or sales process to determine bottlenecks and calculate their impact on cash flow, revenue and profit, and equips managers with the necessary insights to implement changes which improve efficiency in production and sales processes.
Management accounting is an ongoing process because it involves measuring a business’s performance on a regular basis throughout the financial year. The role and scope of management accounting can be broken down into three key functions that contribute to the ongoing measurement of business performance: strategic management, performance management and risk management.
When it comes to measuring business performance there are a number of steps to consider. For example, when measuring the performance of your accounting firm consider the following steps:
From a technical point of view, there are two types of accounting. The first is financial accounting, which relates to the production of financial statements mainly on an annual basis including the balance sheet and the profit and loss statement which show the historical performance of a business. Financial accounting provides transparency for external stakeholders and investors while management accounting is mainly used to provide internal managers and stakeholders with information on strategic management, performance management and risk management. This enables them to make better informed decisions about the business.
Explore more differences between management accounting and financial accounting in the table below.
Management Accounting |
Financial Accounting |
|
Users |
Internal managers/stakeholders |
External Stakeholders |
Certifications |
CMA is preferred but not required |
CPA is preferred but not required |
Regulation/guidelines |
Internal company metrics and KPIs |
GAAP, IFRS, IAS |
Type of report |
Sales reports Departmental reports Inventory reports |
Cash flow statement Balance sheet Income statement |
Common Job Titles |
Accounting Manager Budget Analyst Cost Accountant |
Auditor Financial Analyst Financial Accountant |
As an accountant, it is essential to understand the value of management accounting in maximising profitability and reducing financial risk for your clients or your own business. Using management accounting techniques such as budgeting, variance analysis and forecasting, you can provide your clients with the tools and knowledge needed to make informed decisions and measure business performance on a regular basis.
QuickBooks Online Accountant is a cloud based accounting software for accountants, designed with features to assist accountants in managing their accounting tasks and workflow, and managing their practice and clients with one login. With features that can help streamline your management accounting processes and make them more efficient, QuickBooks also offers a range of tools for financial accounting, taxes management, and payroll, making it an all-in-one solution for all your accounting needs.
Improve your management accounting processes and serve your accounting clients better by signing up for free to QuickBooks Online Accountant today.
Speak to sales 800035703102
