managerial accounting

Examples of managerial accounting in the following topics:

• Managerial Accounting

  • When looking at traditional financial accounting, managerial accounting differs in a few key ways:
  • Managerial accounting creates additional documents used for internal, strategic decision-making.
  • Financial accounting is generally historical, while managerial accounting is about forecasting.
  • There are countless specific examples of managerial accounting practices.
  • Looking at managerial accounting in this diagram, one can better understand its place in the organization.

• Summary and discussion questions

  • In this chapter we discussed the importance of having a well-designed accounting system for your organization as well as the distinction between financial and managerial accounting.
  • While both financial and managerial accounting statements and reports are required and important, managerial accounting statements and reports are more likely to contain the kinds of information you will need to help manage the operations of your organization.
  • Explain the difference between financial accounting and managerial accounting.
  • List and give examples of the six basic types of accounts.
  • Why is it important to have a chart of accounts that is tailored to particular types of organizations rather than one chart of accounts that applies to all types of organizations?

• Introduction

  • learn to set up a chart of accounts for your organization
  • In this chapter, we will discuss the principles of accounting as well as some of the options you have for designing and installing an accounting system for your business.
  • There are many computer-based accounting systems available now, for relatively low cost, that make it easier for an entrepreneur to use software on a PC or the Internet to run an accounting system.
  • Although it is possible to keep essential accounting records manually, or perhaps on a series of spreadsheets, you will find that it is much easier and more reliable to simply use accounting software from the beginning.
  • You may need the advice of an accounting professional to work with you in setting up your accounting records and helping you select and implement a suitable accounting package.

• Tax Accounting

  • Tax accounting couples legal obligations with financial accounting to ensure adherence to current tax laws.
  • Tax accounting is relatively simple to explain, though nuanced in execution.
  • In short, every region has specific tax accounting rules and regulations.
  • Tax accountants act as the bridge between an organization's accounting team and the reporting bodies in the region.
  • This image demonstrates the various responsibilities and perspectives of different forms of accounting (those being tax accounting, managerial accounting and financial accounting).

• Why an accounting system is important

  • Professional accountants look at the accounting records and reports of a business from two perspectives.
  • The term they use to describe these two perspectives is financial accounting and managerial accounting.
  • "Financial accountancy is governed by both local and international accounting standards".
  • "Management (or managerial) accounting, on the other hand, is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions.
  • Also, note that financial accounting reports must be prepared in accordance with national and international accounting standards.

• The Importance of Accountability

  • Being accountable simply means being responsible for decisions made, actions taken, and assignments completed.
  • The United States Department of Organization provides specific guidelines for managerial accountability.
  • In organizations, accountability is a management control process in which responses are given for a person's actions.
  • Because there is no global, democratically elected body to which organizations must account, global organizations from all sectors' bodies are often criticized as having large accountability gaps.
  • The United States Department of Organization provides specific guidelines about accountability of managers.

• Basic types of accounts

  • The six basic types of accounts used in a typical accounting system, according to Wikipedia are:
  • Contra-accounts: from the term ciccia, meaning to deduct, these accounts are opposite to the other five above mentioned types of accounts.For instance, a contra-asset account is accumulated depreciation.This label represents deductions to a relatively permanent asset like a building.It accumulates an annual charge in recognition that a fixed asset like a building is not used up over the course of a year, but that it has a useful life measured in multiple years.Since in certain countries and under certain economic conditions real estate tends to steadily rise in price, perhaps a better example is a truck purchased for use in the business.Its value is more likely to continue to decrease over the years.Even though the market value of a building might increase rather than decrease over the years, accountants will still reduce its value by an annual depreciation charge each year.This is a good example of how financial accounting differs from managerial accounting from the owner's perspective.Depreciation on a building or a truck reduces income for tax purposes in most countries, so it is to the owner's advantage to reflect depreciation charges in the company's accounting records.On the other hand, you can bet that the owner knows the true market value of the building when it comes time to sell it!
  • Typically, accounts in a chart of accounts each have an account number.
  • In the same way, an account number in a chart of accounts uniquely identifies an account and is easier to use in a computerized general accounting system.
  • The next step is to decide the breakdown of accounts you need so that you set up an account for the detailed information you need for each account type.

• The Importance of Finance

  • Managerial finance concerns itself with the managerial significance of finance.
  • Were generally accepted accounting principles (GAAP) followed?
  • A person working in managerial finance would be interested in the significance of a firm's financial figures measured against multiple targets such as internal goals and competitor figures.They may look at changes in asset balances and probe for red flags that indicate problems with bill collection or bad debt as well as analyze working capital to anticipate future cash flow problems.
  • Although it is in principle different from managerial finance, which studies the financial decisions of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to financial problems of all kinds of firms.

• Savings and Loan Associations (S&Ls)

  • They are often mutually held (often called mutual savings banks), meaning that the depositors and borrowers are members with voting rights, and have the ability to direct the financial and managerial goals of the organization like the members of a credit union or the policyholders of a mutual insurance company.
  • While it is possible for an S&L to be a joint stock company, and even publicly traded, in such instances it is no longer truly a mutual association, and depositors and borrowers no longer have membership rights and managerial control.
  • The savings and loan association became a strong force in the early twentieth century through assisting people with home ownership, through mortgage lending, and further assisting their members with basic saving and investing outlets, typically through passbook savings accounts and term certificates of deposit.

• Increasing Coordination

  • It is a managerial function in which different activities of the business are properly adjusted and interlinked.
  • Coordination is simply the managerial ability to maintain operations and ensure they are properly integrated with one another; therefore, increasing coordination is closely related to improving managerial skills.
  • Organizing accountability for every task helps to ensure that efforts are tangibly coordinated and provides structure to operational expectations.