Concepts of managerial accounting
Managerial is a type of information- It provides the information about monetary and non-monetary data as it uses the accounting data, which includes both. Monetary generates a profit and non-monetary information such as what plans and strategies need to be prepared to achieve the planned goals. The information helps to make production decisions, purchasing the material, accounts payable, and sales.
Managerial accounting is Process- It is processed as it contains components like planning, organizing, implementation, and controlling. This process takes place through the accounting data used for analyzing, measurement and interpretation. Managerial accounting is summary of financial of accounting, as all decisions making process depends on the data provided by the financial accounting.
It has various types of analyzations- Managerial accounting has the below-mentioned types of analysis.
Production costing and valuation- It looks into production costs. Production costs include various types of costs such as fixed, variable, and semi-variable, direct or indirect cost. It helps to identify and measure these costs per type of product produced by the company to make an efficient decision to reduce the cost and increase the profit generated by these products.
Cash flow analysis- Most companies use an accrual basis of accounting, which means a transaction gets recorded when it takes place instead of generating cash immediately. Cash flow analysis includes the analysis such as from where a company received cash and whom to payout. It helps to make an important decision related to cash. For example: If a business wants to buy an asset, it should be bought at one go or with installments and record this transition in books, which shows the minimal impact in the short term.
Inventory turnover analysis- Inventory turnover denotes the analysis of how many times a company sells the entire inventory in a particular accounting period and comparing it to industrial averages.
Characteristics of managerial accounting
Managerial accounting is useful for decision-making- It provides the information using the accounting data, which helps the management plan, control, and make decisions.
It is the summary of financial and cost accounting- Managerial accounting uses data from financial and costs accounting as it is most helpful for management. Therefore, it includes the data related to financial and cost accounting.
It has the flexibility to present the data- As financial accounting has specific formats to present the data, managerial accounting does not have any specific format to present the data. Accountants use any format as per the requirements and whichever format is more appropriate as per the data.
Optional- Managerial accounting is not mandatory. It is purely optional. Businesses can adopt it as per their requirements and desirability.
Objectives of managerial accounting
Managerial accounting has four main below mentioned objectives.
Planning- Managerial accounting helps the management prepare and forecast the short-term plans for future business activities and create strategies. It uses management techniques for the implementation, such as standard costing, budgeting, and marginal costing, etc.
Controlling- Controlling plays an important role in a business, and managerial accounting helps control through controlling techniques such as control ratios, internal audit and budgetary control, etc.
Communication- Communication is the key to growth for any business. Managerial accounting helps in communications as it helps prepare the reports of the performance of various sections to various levels of management, which helps to run a business smoothly and exercise control over them.
Coordinating- As managerial accounting is a summary of financial and cost accounting, it collects the information from various sections to present the data in a report format. It helps to decide for every section towards the one objection, which creates automatic coordination.