Managerial Accounting

Managerial accounting (also called management accounting) is the process of identifying, recording, analyzing, and presenting financial information to be used internally by the management for planning, decision making and control.

The term cost accounting is also sometimes used to refer to the process of capturing management accounting information.

Unlike financial accounting which is concerned with providing information to external users (investors, creditors, regulators, etc.), managerial accounting aims at providing relevant information to internal users. While financial accounting is mandated by regulation and must comply with external financial reporting standard, management accounting is guided by information requirements of the management, market factors, industry dynamics, etc.

Roles of managerial accounting

The major roles of managerial accounting are as follows:

  • Planning and Budgeting: Managers use managerial accounting techniques to plan what to sell, how much to sell, what price is to be charged to reimburse the costs of production and also earn an optimal profit. Also they have to plan how to finance the operations and how to manage cash etc. This is very important to keep the business operations working smoothly. The capital budgeting and master budget are the two important topics in this area.
  • Decision Making: When managers have to decide whether or not to start a particular project, they need managerial accounting information to estimate the benefits of various opportunities and decide which one to choose. Mangers often use relevant costing techniques.
  • Performance Measurement: Managers have to compare the actual results of operations to budgeted figures to evaluate the performance of the business. They use managerial accounting techniques such as standard costing to evaluate the performance of specific departments. They then make necessary adjustments in those departments which are not performing well.

Major management accounting organizations and designations

Many jurisdictions have institutes of management accountants which lead the management accounting profession in their relevant countries. Many of these institute confer the Chartered Management Accountant (CMA) or similar designations on their members.

In UK, the premier management accounting body is the Chartered Institute of Management Accountants (CIMA). The American Institute of Certificate Public Accountants (AICPA) and CIMA has introduced the Chartered Global Management Accountant (CGMA) designation.

In US, the Institute of Management Accountants (IMA) offers the Certified Management Accountant (CMA) designation.

In some countries, such as Canada, there is a convergence in accounting profession which has resulted in consolidation and introduction of a single accounting designation, the Chartered Professional Accountant (CPA).

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