Managerial accounting encompasses more than reporting numbers. Managerial accounting includes partnering with other managers and departments and providing tools and reports to those areas. The managerial accountant assists with planning and controlling each department.
Managerial accountants plan future activities for the company in order to maximize the financial benefits received and minimize financial consequences. Financial benefits include revenues and gains on fixed asset sales. Financial consequences include expenses, capital expenditures and income tax liability. Financing activities require interest payments from the company. Managerial accountants work with management to minimize interest requirements.
Planning activities include budgeting, capital expenditure analysis and production planning. Managerial accountants meet with department managers throughout the company to determine realistic expenses for the following year. Together the managerial accountant and the department manager evaluate which expenses continue to exist, which should be eliminated and which need to be revised. Equipment updates require capital expenditure analysis to determine if each update makes sense financially. Managerial accountants analyze capital expenditures using the payback method, the internal rate of return method and the net present value method. The results are shared with managers for final decision making. Managerial accountants collaborate with the plant manager to create a production plan that accounts for meeting customers' needs while minimizing costs on additional inventory.
Management accountants control department activities in order to evaluate the performance of each area. This allows management to determine if the actual activities tie in with the planned activities for each department or each capital expenditure.
Managerial accountants control company activities by comparing actual results with predicted results. Management accountants prepare monthly budget reports by listing actual expenses and budgeted expenses then calculating the difference. Large differences require further investigation by the management accountant to determine why the difference occurred. Differences due to miscalculations in the budget or changes in economic factors require a revision in the budget going forward. Temporary differences, such as a temporary equipment breakdown or a labor strike, can be explained.
