This week, we will be looking at Managerial accounting and Cost accounting.
Managerial accounting is the practice of identifying, measuring, analyzing, interpreting, and communicating financial information to managers to pursue organizational goals. This is intended to assist users internal to the company. For example, managers and management.
Managerial accounting is taxed with presenting accounting/ financial information used by management for internal purposes. It is not dictated by accounting standards, unlike financial accounting. It can also be modified to meet the specific needs of its end users. Managerial accounting uses information relating to the cost and sales revenue of goods and services.
Some of the uses for managerial accounting include:
- Planning,
- Decision making,
- Controlling costs,
- Product costing,
- Budgeting,
- Forecasting and
- Financial analysis.
Cost accounting is a branch that involves the classification, accumulation, assignment, and control of costs. Cost accounting focuses on capturing a company’s total costs of production by assessing the variable cost of each step of production and fixed costs. One of the major objectives of cost accounting is to reduce unnecessary spending and maximize the profits of an organization. The basic objectives of cost accounting include:
- To ascertain costs.
- To control costs.
- And cost presentation.
Cost accounting aims at the systematic recording of expenses and analysis, so as to ascertain the cost of each product manufactured or services rendered by an organization. The cost per unit varies with an increase in the volume of output.
Cost per unit = Total expenditure
/ Total units produced or service rendered
The different types of Management and cost accounting we have include:
- Product costing and valuation.
- Cash flow analysis.
- Inventory turnover analysis.
- Constraint analysis.
- Financial leverage metrics.
- Accounts receivable management.
- Budgeting, Trend analysis, and Forecasting.
Differences between Management Accounting and Financial Accounting
| MANAGEMENT ACCOUNTING | FINANCIAL ACCOUNTING | |
| 1. | The intended users of the financial information prepared in management accounting are the internal users of an organization; Like the Managers/ management | The intended users here are the stakeholders outside of the business. |
| 2. | The accounting standards. For management accounting and not dictated. That is to say that the preparers of such information used in management accounting are free to dictate how they want the information to appear. | Financial accounting is dictated by accounting standards. The information prepared in financial accounting must conform to the generally accepted principles (the GAAP) in financial accounting management. |
| 3. | In management accounting, financial information can be modified to meet the specific needs of its intended users. Information is tailored to show the intended users what they need to know and provide guidance to the decisions that need to be made and how they want to use it | In financial accounting, information is presented as a whole, at a glance. This means that financial statements are not broken down, but rather presented in their entirety for readers/ users to have a wholesome view of the organization. |
| 4. | the purpose of management accounting is for planning and decision-making by top management. | Meanwhile, Financial accounting is concerned to record business transactions in books of accounts so that the financial statements can be prepared. |
Stay tuned for Part 2…
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