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What is Management Accounting?

Definition: Management accounting, also called managerial accounting or cost accounting, is the process of analyzing business costs and operations to prepare internal financial report, records, and account to aid managersí decision making process in achieving business goals. In other words, it is the act of making sense of financial and costing data and translating that data into useful information for management and officers within an organization.

What Does Management Accounting Mean?

What is the definition of management accounting? Management accountants (also called managerial accountants) look at the events that happen in and around a business while considering the needs of the business. From this, data and estimates emerge. Cost accounting is the process of translating these estimates and data into knowledge that will ultimately be used to guide decision-making.

The main difference between financial and managerial accounting is whether there is an internal or external focus. Financial accounting focuses on creating and evaluating financial statements that will be reported externally, like creditors and investors. In contrast, managerial accounting analyses and results are kept in-house for business leaders to use to drive decision-making and run the company more effectively. Managerial accountants handle many facets of accounting. These include margins, constraints, capital budgeting, trends and forecasting, valuation and product costing.

Letís look at an example.

Example

Anderson is the CEO of a small consulting firm. He wants to hire a management accountant and a financial accountant. He has come up with a list of job tasks and he needs to break them up into those that should be performed by the managerial accountant and those that should be performed by the financial accountant. Here is the list of tasks that Anderson has come up with:

  1. Preparing cash flow statements
  2. Income statement reporting
  3. Budgeting
  4. Calculating changes in stockholder equity
  5. Preparing taxes for the organization

In this example, the only tasks that would be assigned to the management accountant are budgeting and taxes. The financial accountant would handle the other tasks.

Summary Definition

Define Management Accounting: Management accounting means analyzing and recording business activities for internal company use in an effect to increase efficiency and productivity.

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