What Is Analytical Accounting?

Tracking costs and revenues is one of the most fundamental internal procedures an organization can utilize. In business, analytical accounting is a name for the financial component of project management. It relies on financial data to make determinations about how, when and why a business spends and receives money.

Analytical Accounting Overview

Analytical accounting uses many of the same financial measurements that businesses track and record for their budgeting and financial statements. The key difference is that it displays financial data in a number of ways based on an analyst's needs and questions, rather than simply balancing accounts. For example, a project manager overseeing a new product launch may this method to review marketing costs week-by-week or from one geographic location to another.

Analytical Accounting Tools

Most analytical accounting uses software tools to make the process accurate and to reduce the time it takes to compile and organize data. Computer programs from major software makers enable users to create modules, or plans, that track specific types of costs and revenues. Large businesses may create their own software to serve their specific needs or address the types of costs and revenues their industry generates. Analytical accounting tools are similar to, but not the same as, general accounting software, although some general accounting programs include basic analytical functionality.

Reasons for Using Analytical Accounting

Businesses use analytical accounting for several reasons, all of which rely on the additional information it makes available to assist with decision making processes. One purpose is to identify costs that arise over time with hopes of reducing them. This is also a useful way of recognizing temporary or regionally specific revenue increases so business leaders can attempt to sustain them. In a more general sense, businesses can develop more personalized views of their finances, which have more value to managers.

Investment and Interpretation

To perform analytical accounting, a business needs to invest in both software and personnel to manage the system. This means taking on a considerable cost with uncertain results. Managers also need to be able to interpret the data and use it to make strategic decisions. This means that analytical accounting, on its own, has limited utility. However, in an ideal scenario, a business can use it to reduce project costs, accurately project revenue and gain a competitive advantage in its industry.

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