Learning objectives of this article:
- What is managerial accounting?
- What are functions of managerial accounting?
Managerial accounting is
concerned with providing information to managers-that is, people inside
an organization who direct and control its operation. In contrast,
financial accounting is concerned with providing information to
stockholders, creditors, and others who are outside an organization.
Managerial accounting
provides the essential data with which the organizations are actually
run. Managerial accounting is also termed as management accounting or
cost accounting. Financial accounting provides the scorecard by
which a company's overall past performance is judged by outsiders.
Managerial accountants prepare a variety of reports. Some reports focus
on how well managers or business units have performed-comparing actual
results to plans and to benchmarks.
Some reports provide timely,
frequent updates on key indicators such as orders received, order
backlog, capacity utilization, and sales. Other analytical reports are
prepared as needed to investigate specific problems such as a decline
in the profitability of a product line. And yet other reports analyze a
developing business situation or opportunity. In contrast, financial
accounting is oriented toward producing a limited set of specific
prescribed annual and quarterly financial statements in accordance with
Generally Accepted Accounting Principles (GAAP). (Ray
H. Garrison Eric W Noreen 1999).
Managerial accounting is managers oriented therefore its study must be
preceded by some understanding of what managers do, the information managers
need, and the general business environment.