Saturday, 19 May 2012

What is Management Accounting?

While financial accounting seeks to account how a business used its financial resources, management accounting seeks to report how well the resources were used and indicate how to use them even better. Another major difference is that financial accounts are mainly meant for an external audience whereas management accounting reports are typically seen and used only by managers inside the business organization.


The information generated in the course of financial accounting might be used, but in a different way. For example, cost accounting (part of management accounting) accumulates the costs incurred by the business under "cost centres" instead of by the type of expense. For example, while financial accounting typically records all wage payments under a Wages Account, cost accounting analyses the wage payments by cost centres such as a particular project or department.


Managers are interested in how much cost a project incurred and under what categories, rather than in the total amount of wages paid across the whole organisation.


Management accounting also deals with non-financial data, such as output quantities. Actual performance is compared against standards that should have been achieved. Such comparisons can highlight variances from standards, which are then analysed by the factors that caused the variances. This kind of analysis tells the manager about specific problems that need his or her attention.


We will look at management accounting practices in more detail in forthcoming posts.
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7 comments:

  1. Just to add, management accounting is used primarily by those within the company. Like for the purpose of providing information to people within the business. It doesn’t cover the entire company; instead it is concerned with particular products, and also, this is not required by law.

    Phyllis Stoffel

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