Monday, April 9, 2012

Management Accounting

Managerial accounting deals with information that is not made public and is used for internal decision making only. These reports are far more detailed than financial accounting and can cover performances and activities by departments, products, customers, and employees. It is an accounting system that helps management achieve the goals and objectives of the organisation with an emphasis on the measurement, analysis, communication and the control of financial and non-financial information.

Management AccountingThis branch of accounting is primarily interested in assisting the organisation’s department heads, division managers, and supervisors make better decisions about the day-to-day operations of the business and in particular, those relating to the planning and control decisions
The essential data is conveyed in a wide variety of reports and is specifically targeted at those who direct and control the organisation. These reports help to promote more efficient and effective plan making, resources organizing, personnel directing, motivating and performance evaluation, and operations control.

Unlike financial accounting, there are no external rules governing management accounting. The emphasis in this branch is on making decisions that affect the future with results being compared to budgets, activity-based costing, financial planning or to industry benchmarks. These reports are delivered frequently and in a timely way according to the requirements of management. Most reports are analytical in nature with a heavy emphasis on variances in the key indicators that monitor the financial performance of the business unit. A more specialised area of management accounting is Cost Accounting.

For the entrepreneur, the no.#1 most critical management accounting report is the 13 week moving cashflow forecast. Get your accountant to set this up for you using a spreadsheet program like Microsoft Excel. You should learn to update it weekly and so manage the life blood of your business  - your cash. You should also identify the key performance indicators for your business and have these monitored closely at appropriate intervals. (i.e. Sales - daily, Expenses - monthly, Average unit sale & average customer sale - weekly)

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