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Managerial Accounting

Accounting Made Managerial Accounting refers to the accumulation and preparation of financial reports for internal users only (e. g. management). Managerial Accounting includes all manipulations of financial information for use by managers in performing their specified organizational functions and additionally in ensuring the proper used and handling of an entity’s resources. “It is the internal business building role of accounting and finance professionals who work inside organizations. These professionals are involved in designing and evaluating business processes, budgeting and forecasting, implementing and monitoring internal controls and analyzing, synthesizing, and aggregation information – to help drive economic value” (IMA). Financial Accounting vs. Managerial Accounting Financial Accounting is primarily concerned with the recording of business transactions and the eventual preparation of financial statements. Its purpose is to record the transactions carried out by an organization, principally companies with their environment, in order to summarize at regular intervals their financial position and assets, as well as the net profit or loss on operations. Financial accounting focuses on general purpose reports known as financial statements intended for internal and external users and is subject to reporting according to GAAP (e. g. accrual method of accounting). This financial information is generally for the public, as required by law, and consists of a summary of the company’s past transactions. These all­purpose reports with historical date are prepared for use of different parties and the presentation of the financial statements are done formally, and are still useful even if submitted late. The nature of accounting information is monetary and reports the about the company as a whole. On the other hand, Managerial Accounting is responsible to a lesser degree of financial statement presentations to external users because their reports, which are usually confidential, are primarily for internal purposes or users. Also, it is not subject to reporting according to GAAP (e. g. ash basis). The reports have a strong future orientation, due to the fact that these are used to forecast the company’s health. These, not being required by law, may also be presented informally and timeliness of report is often more important than precision or accuracy and are for specific users only. The nature of its accounting information is both monetary and non­monetary and reports only parts or segments of the company. Other sources refer to Management Accounting as similar to Cost Accounting. However, Cost Accounting is only a subset of both financial and management accounting. This is because management involves many decisions based upon cost information. Accurate product costs must be determined according to the Generally Accepted Accounting Principles (GAAP) and according to decision relevance for internal purposes. Accounting Basics Accounting standards are needed so that an establishment’s financial statements with fairly and consistently describe its financial performance. Without these vital standards, comparisons and evaluations between companies will be quite difficult since financial statements will be based on individual company accounting rules. The activities that are part of managerial accounting include: (a) explaining manufacturing and nonmanufacturing costs and how they are reported in the financial statements; (b) computing the cost of rendering a service or manufacturing a product; (c) determining the behavior of costs and expenses as activity levels change and analyzing cost­volume­profit relationships within a company; (d) assisting management in profit planning and formalizing the plans in the form of budgets; (e) providing a basis for controlling costs and expenses by comparing actual results with planned objectives and standard costs; and (f) accumulating and using relevant data for management decision making. Ethical Standards Managerial accountants recognize that they have an ethical obligation to their companies and the public. The IMA has developed a code of ethical standards entitled Standards of Ethical Conduct for Management Accountants. This code divides the managerial accountant’s responsibilities into four aspects: competence, confidentiality, integrity, and objectivity. Competence includes performing duties in accordance with laws, regulations and the like and preparing complete and clear reports and recommendations. Confidentiality refers to refraining from disclosing confidential information and from using or appearing to use confidential information for unethical or illegal advantage. Integrity involves refusing gifts or favors, recognizing and communicating professional limitations, active or passive subversion of the company’s attainment of objectives, communicating both favorable and unfavorable information, and refraining from activities that would discredit the profession. Lastly, objectivity refers to communicating information fairly and objectively and disclosing fully all relevant information that could influence a decision. Management functions involve performing three broad functions, namely planning, directing and motivating, and controlling. Planning requires the management to look ahead and establish their objectives or goals as a company, keeping in mind that these objectives add value to the business under its control. Directing and motivating involves coordinating diverse activities and human resources to produce a smooth­running operation. Controlling, on the other hand, is the process of keeping the form’s activities on track. In controlling operations, management determines whether planned goals are being met and what changes are necessary when there are deviations from targeted objectives, All these management functions become the foundation for the cause of applying management accounting. To be able to properly account for the success or failure of the business, accounting processes are used and standards are imposed. Ultimately, the purpose or goal is to objectively assess the performance of a corporation to be able to help forecast its future health.


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