How Managerial Accounting Works

Managerial accounting encompasses many facets of accounting aimed at

improving the quality of information delivered to management about business
operation metrics. Managerial accountants use information relating to the cost
and sales revenue of goods and services generated by the company. Cost
accounting is a large subset of managerial accounting that specifically focuses
on capturing a company's total costs of production by assessing the variable
costs of each step of production, as well as fixed costs. It allows businesses to
identify and reduce unnecessary spending and maximize profits.

Read more about the common concepts and techniques of managerial

accounting.

Managerial Accounting vs. Financial Accounting

The key difference between managerial accounting and financial accounting
relates to the intended users of the information. Managerial accounting
information is aimed at helping managers within the organization make well-
informed business decisions, while financial accounting is aimed at providing
financial information to parties outside the organization.

Financial accounting must conform to certain standards, such as generally

accepted accounting principles (GAAP). All publicly held companies are
required to complete their financial statements in accordance with GAAP as a
requisite for maintaining their publicly traded status. Most other companies in
the U.S. conform to GAAP in order to meet debt covenants often required by
financial institutions offering lines of credit.

Because managerial accounting is not for external users, it can be modified to

meet the needs of its intended users. This may vary considerably by company
or even by department within a company. For example, managers in the
production department may want to see their financial information displayed
as a percentage of units produced in the period. The HR department manager
may be interested in seeing a graph of salaries by employee over a period of
time. Managerial accounting is able to meet the needs of both departments by
offering information in whatever format is most beneficial to that specific need.

KEY TAKEAWAYS
 Managerial accounting involves the presentation of financial information
for internal purposes to be used by management in making key
business decisions.
 Techniques used by managerial accountants are not dictated by
accounting standards, unlike financial accounting.
 The presentation of managerial accounting data can be modified to
meet the specific needs of its end-user.
 Managerial accounting encompasses many facets of accounting,
including product costing, budgeting, forecasting, and various financial
analysis.