Managerial Accounting Basics

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(cheerful music) Managerial accounting mostly involves collecting and analyzing internal data to aid in the decision-making process. The information collected, evaluated, and reported isn't meant to be seen by anyone outside the organization. In many cases, the information is restricted to certain individuals inside the organization, and isn't available to all employees. This information may not always be accurate because it may include projections of future events. Managerial accounting is often product-specific. It requires a more comprehensive evaluation of information and looks at all factors that may affect the decision-making process in the future by projecting budgets, developing strategic goals, and forecasting. Some factors to include in the accounting process are geographic regions, projected versus actual sales, and different types of variances, such as raw materials and labor. Business management has become increasingly complex due to governmental laws and regulations, international trade treaties, and the changing nature of the business climate. Management reacts to this changing environment in three phases, planning, controlling, and evaluating. The managerial accountants role is to advise management in the decision-making stage of each phase by collecting, analyzing, and reporting this information so that they can make informed business decisions. In the planning phase, a business will typically establish a strategic plan for the next 10 years. This plan includes managerial accounting functions, such as capital budgeting, break-even projections, margin analysis, and sales mix and pricing. If the business is manufacturing, then the strategic plan may also include cost volume-profit analysis, contribution margin ratios, and overhead costs. In the controlling phase, the managerial accountant may be called on to advise management on setting up control measures to monitor the progress towards meeting the company's strategic plan goals. These controls can be physical, such as securing assets or limiting access to items, or they could be performance measures like product output per shift, or sales per week. During the evaluation phase, the managerial accountant can advise management by collecting, reporting, and analyzing the data to determine if the strategic goals are being met. This is usually done by comparing expected goals and projections against actual results. If actual results are in line with projections, then management knows it's on the right track, and adjustments may not be needed. If the actual results didn't meet projections, then management needs to find out why, and address the areas that will have an impact on reaching goals. Managerial accounting is vital for an organization's success and can impact each phase of the management process. Managers and executives rely on managerial accounting to help in the budgeting cycle, project break-even points, provide tools to monitor goal reaching, or perform other functions.