Definition: Managerial accounting is the process and procedures that create documents and reports to aid management in the decision-making processes of running the company. It sounds like a mouthful, right? Well managerial accounting is actually pretty simple really. It’s the information that managers need in order to make decision about how to improve the company.
What Does Managerial Accounting Mean?
Managerial accounting is what managers use to measure the success or failure of the business and if the business is meeting its goals. Basically, it’s a way for managers to tell whether their department or project is doing well and meeting expectations. Management goals could have to do with cost cutting or production output.
Example
Unlike financial accounting, managerial accounting is only used for internal purposes. Managerial accounting is focused on internal performance like departments, projects, and processes; whereas, financial reporting is focused on the business as a whole. Managerial accounting helps managers improve business processes much the same way financial reporting helps investors make investment decisions.
Another difference in managerial and financial accounting is that managers and managerial accountants don’t have to worry about following GAAP like financial reporters do. This is because management reports never get issued to banks or external parties like financial reports do.
Managerial accountants tend to look at reports and performance calculations like inventory turn reports, accounts receivable aging summaries, or work efficiency reports. All of these reports and calculations help management make decisions about what the company needs to change in order to improve specific production processes and departments.
