Business and Personal Finance: Management Accounting

More Ways Accounting Helps Your Business – Management Accounting

The biggest difference between financial accounting and management accounting is the intended user: financial accounting is used to inform people outside your company; management accounting is used only by insiders, to make critical business decisions. Where financial accounting looks at the big picture, management accounting concentrates on the details. Unlike financial accounting, management accounting isn’t subject to external rules and regulations; reports don’t have to be in a prescribed format, and they can contain information relevant only to the particular issue at hand.

While the basic information is the same, the way it’s used is very different. For example, rather than looking at the total cost of goods manufactured (for a manufacturing company), a management accounting report might focus on getting to the unit cost of manufacturing each product. Detailed information like that is critical to your business plans, including seeking ways to control costs.

FACT

Management accounting isn’t solely concerned with cutting costs, though that’s the picture most people get when they think about this branch of accounting. Other areas of importance to management accounting include things such as quality control, optimal inventory management, improving efficiency and productivity, and scheduling major purchases.

Management accounting reports often contain multiple scenarios, allowing you to see the impact of different decision alternatives. Since the information is all geared to a specific purpose, these reports can be more useful than the standard financial fare in helping you move forward with new ideas. For example, if you are trying to cut costs, you can create pro for- mas to show the impact of different cost changes on your bottom line.