The significant success of many companies depends on numerous factors, like product and service, marketing, people, processes, and management. Another type of management that drives company success is management accounting. It involves the process of creating and meeting company goals by communicating financial information to stakeholders.
But what is management accounting in more detail?
Let us take you on a journey where you can learn more about this type of accounting, the purpose of managerial accounting, what management accountants do, and more.
Understanding Management Accounting
Management accounting ensures that accounting practices and financial activities support operational processes and continuous growth of a company or corporation. Moreover, management accounting ensures internal management and executives make the most beneficial business decisions for their companies. It also includes budgeting, internal auditing, treasury, and cost accounting functions.
This type of accounting is integral to business operations as it directs forecasting, budgeting, and planning, tracks and measures performance, and supports project management decisions.
What is Management Accounting?
Managerial accounting or management accounting is a type of accounting that involves identifying, analyzing, interpreting, and communicating financial information to managers to make informed decisions that support the long-term goals of a company.
The main objective of management accounting is assisting the internal stakeholders of a company with various functions such as:
- Providing data for planning and forecasting;
- Analyzing data such as calculating ratios and projecting trends for decision-making;
- Aiding meaningful discussions to take the best course of action in various stages of planning;
- Helping convert organizational strategies and objectives into feasible business goals;
- Using qualitative information such as industry cycles, strength of research, and development through surveying to make informed decisions.
What do Management Accountants do?
Management accountants can work in various industries for public companies, government agencies, and private businesses. What distinguishes accountants from other types, such as financial accountants, is that they focus on preparing data for internal use within a company to help managers and executives make decisions. They also supervise lower-level accountants, who perform basic accounting tasks like recording income and expenses.
Some of the day-to-day duties and responsibilities of management accountants include:
- Identifying opportunities for financial investment that can benefit the company;
- Prepare financial reports like cash flow statements, tax documents, assets, etc;
- Setting, monitoring, and maintaining budgets for a company;
- Using financial insights to make strategic decisions;
- Analyzing data for performance improvement;
- Identifying trends and opportunities for improvement;
- Monitoring and enforcing compliance.
What Qualifications Do You Need To Become a Managerial Accountant?
Here’s an overview of what you need to do to become a managerial accountant:
Education
The minimum education required to become a managerial accountant is a bachelor’s degree in accounting or financing or a related field. After completing your bachelor’s degree, you can consider pursuing additional education, such as a master’s degree in accounting. Through it, you’ll be able to specialize your knowledge and skills and prepare for the diverse job market.
Although becoming a certified management accountant (CMA) isn’t required, holding the CMA certification can help you prove your expertise in accounting and financial management, help you advance in your career, and help you find high positions at multinational companies, as it’s a globally recognized certification. After graduating from university, you must gain at least two years of relevant professional experience in financial management or management accounting to be eligible to sit for the CMA exam.
Experience
Managerial accounting is a field that demands a blend of practical experience and a diverse skill set. Professionals with a background in financial analysis, budgeting, cost accounting, and a strong grasp of analytical and communication skills are well-prepared to excel in managerial accounting roles.
Excelling as a managerial accountant requires combining hard and soft skills, such as:
- Knowledge of regulations and standards,
- Proficiency in financial accounting and analysis,
- Risk management,
- Knowledge of accounting software,
- Excellent verbal and written communication skills,
- Time management,
- Attention to detail,
- Good analytical skills,
- Management and mentoring skills,
- Budgeting and forecasting skills.
Types of Managerial Accounting
Managerial accounting encompasses various types of managerial accounting that focus on providing different financial information for internal decision-making. Below we will discuss some of them in more detail.
Constraint analysis
Constraint analysis involves the review of various constraints that a production line or sales process can present. Management accountants identify bottlenecks in manufacturing, conversion, or acquisition that can disturb other areas of the process, such as cash flow, overall profits, and revenue generation. Through contract analysis, management can implement strategies to improve efficiency in production and sales.
Cash flow analysis
Cash flow analysis is a crucial process to determine the cash impact of business decisions. Moreover, it analyzes the company’s different cash inflows and outflows during a specific accounting period or examines their timing with monthly or yearly cash flow statements.
Managerial accountants may implement working capital management strategies to optimize cash flow and to ensure that their company has enough liquid assets to cover short obligations such as salaries, lease payments, and income taxes payable.
To assess and understand a company’s cash flow, managerial accountants can employ methodologies such as operating cash flow ratio, cash flow coverage ratio, and cash flow to debt ratio.
Trend analysis
Trend analysis is an important process that involves analyzing a company’s financial information over a period of time. It helps companies make insightful decisions by comparing financial statements to understand market trends and make forecasts.
Moreover, trend analysis in managerial accounting is useful for taking information from multiple periods to find actionable patterns from the given information, which can lead to increased profits.
Product costing and valuation
Product costing and valuation is a type of management accounting that involves determining the total costs of producing products or services. The costs can be broken down into categories such as direct, indirect, fixed, or variable costs.
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Through cost accounting, managerial accountants calculate and allocate overhead charges to assess the full expenses related to the production of a product. Moreover, they analyze strategies to reduce overspending and maintain budgets to determine pricing frameworks that support profit generation.
Accounts receivable management
Accounts receivable (AR) management involves the process of resolving outstanding accounts, collecting on receivers, and analyzing credit risk, which is crucial for a business to operate and generate revenue.
Managerial accountants review receivables to analyze the payment and collection methods and protect accounts from becoming credit risks. Some of the best accounts receivable practices include establishing a credit policy, making payment as easy as possible, switching to digital accounting, conducting weekly AR reviews, etc.
Budgeting
Last but not least, budgeting is a type of managerial accounting that plays a crucial role in achieving company goals. This is because budgets help regulate a company’s operations and spending.
Moreover, through budgeting, managerial accountants are able to note deviations in the results from budgets. They also analyze the positive or negative deviations from a budget to make appropriate changes in strategy planning going forward.
Management Accounting: Job Growth and Salary
The salary of managerial accountants depends on several factors, such as education, location, experience, and the company they work for. According to the BLS data, the salary for accountants is $78,000 per year or $37.50 per hour.
At the same time, the same data predicts a 4% growth within the industry for the 2022-2023 period, estimating about 126,500 new jobs for the industry. The projected growth is due to globalization, a growing economy, and complex tax regulations. While technology can help automate some accounting tasks, this change will only help increase the accountants’ efficiency and isn’t expected to reduce the overall demand.
Bottom line
Management accounting is integral to the overall success of a company by providing the financial tools and information necessary for effective planning, forecasting, and decision-making to managers and executives. Management accounting covers different financial aspects that help strategic planning and internal decision-making, while also analyzing data for performance improvement, identifying opportunities for investment and growth, and setting and meeting company goals.
If you like to assess the growth and predict the best financial practices for the future, and want to hold a position where you can guide a company toward success, managerial accounting could be the right career path for you. The road of management accounting goes on and on, so take the first step toward the mountain of success today!
Frequently Asked Questions:
What is the basic difference between management accounting and financial accounting?
The main distinction between management accounting and financial accounting lies in their focus. Management accounting focuses on providing internal stakeholders (managers and executives) with forecasts and budgeting to make forward-looking, informed decisions. On the other hand, financial accounting focuses on historical financial data to provide financial statements to external stakeholders (investors, regulators, and creditors) that reflect the overall financial health of a company.
Who needs management accounting and why?
The internal stakeholders, such as managers and executives of public companies, private businesses, and government agencies, need management accounting. Management accounting is vital for them, as it provides valuable financial information that helps them make strategic decisions, set goals, assess the performance of the business, and evaluate investment opportunities.
What is the main role of management accounting?
Management accounting’s main role involves providing the stakeholders, managers, or decision-makers with accurate and relevant financial information to support strategic decision-making within a company. Managerial accountants collect, analyze, and present financial information to illuminate the best course of action to achieve a company’s goals. They also support strategic decision-making by budgeting and forecasting, cost analysis, investment appraisal, performance evaluation, and product and service profitability analysis.
