Explain Management Accounting

Management accountants help the firm maximize its profits.

Management accounting is one of the three broad areas of accounting, which generally processes financial data to provide useful financial information to help firm managers make decisions. Management accounting mainly focuses on information that a firm internally uses to prepare budgets, evaluate performance, price products and control expenses to maximize profit.

Features

Management accounting professionals accumulate and identify relevant financial information, then analyze it and present it in a way that is meaningful to the firm managers. The managers can then use the information to plan and carry out processes within the firm so it maximizes its use of resources to achieve maximum profits. Management accounting also includes preparing financial reports for non-management groups, such as shareholders, creditors, regulatory agencies and tax authorities.

Cost Concepts

A large area of management accounting is identification of costs. Management accountants determine the sources of costs to find ways to drive costs down. They determine how costs change as the firm produces or sells more or less of the products. They also consider cost factors other than the number of products, including assembly, disposal, shipping and receiving. Using these numbers, the firm managers can determine the number of units to produce and sell to generate a certain amount of profit.

Budgeting

Management accountant prepare budgets for their firm to help it reach its financial goals. These budgets plan the activities of the firm's business units for the next one to 10 years. They provide numbers for managers to compare the firm's performance to. Using budgets, managers can prioritize tasks and drive the firm employees to reach the budgeted targets.

Careers

Approximately 60 percent of all accountants in the United States work in management accounting, according to the University of Wisconsin--Stevens Point. These accountants hold the following job titles: revenue auditors, cost accountants, cost analysts, cost systems analysts, financial analysts, auditors and accountants. Management accountants usually help manage the business team while reporting to the finance department.

References

• UCLA Anderson School of Management: Accounting
• University of Wisconsin - Stevens Point: Managerial Accounting Guide
• Thompson Rivers University: Management Accounting
• Massachusetts Institute of Technology: The Nature of Costs
• Massachusetts Institute of Technology: Budgets and Budgeting