The Advantages of Managerial Accounting
The key purpose of accounting information is to assist decision-makers such as investors, managers and government agencies. Financial accounting involves compiling a business's annual transactions in the form of financial statements that are viewable by the public. However, managerial accounting is specifically used to produce information for managers within an organization. While financial accounting is most advantageous to external parties, managerial accounting helps fulfill internal organizational objectives.
A key focus of managerial accounting is planning for the future. Managerial accountants develop reports that are more detailed than financial accountants. They can include information about specific products, market reach and regional information. Based on the information obtained from reports such as surveys, budgets or competitor analysis, managers can set objectives and outline how they will be achieved.
The information obtained from managerial accounting gives managers a greater sense of control over an organization's success. Since the information provided in managerial accounting reports are only used internally, they do not have to adhere to generally accepted accounting principles, or GAAP. Therefore, managers can choose what areas of the company require additional investigation and which areas can be examined later. During the controlling phase, managers examine quantitative and qualitative feedback from managerial accounting and make additional decisions.
Management accounting also considers how certain decisions may affect a manager's behavior. A manager makes long-term decisions that have a lasting impact, so managerial accounting is used to develop plans and convey information with the goal of improving management decisions. Budgets are an important aspect of managerial accounting, but they are not included in financial accounting because of its focus on historical data. Therefore, managerial accounting has the advantage of providing a more detailed analysis.
Contrary to financial accounting, which focuses on historical reports, managerial accounting considers actual performance and compares it to goals and future outlooks. This information is used to identify issues that may arise in budgets or production changes and develop alternatives. Sometimes, the accounting information that a company currently has may not be sufficient in solving a problem, so managerial accounting gives managers the option of requesting additional information with limited time constraints.
Managerial accounting helps with goal setting by making the numbers transparent. Managers can measure and note performance while setting goals and making adjustments to motivate employees with the ultimate goal of driving revenue.