Management accounting, or managerial accounting, is one of the most important accounting departments in all institutions. Although some people believe that it is similar to financial accounting, cost accounting, or anything else, this is not the truth. The management accountant needs special qualifications, skills, and experience to be able to work in management accounting. Therefore, this article provided a detailed explanation of management accounting, its characteristics, and its most prominent roles in companies.
What is management accounting?
Management accounting is the information system that is concerned with providing administrative accounting services at a high level of efficiency and professionalism and specializes in preparing reports and books, monitoring revenues and expenses, working with the company’s periodic budgets, and calculating taxes. This is done with the aim of directing financial transactions and other data to develop and improve the services provided by the organization, thereby positively impacting profits.
In addition to providing financial data, management accounting also provides non-financial information that the company needs to make decisions in the public interest of the organization and its employees, develop appropriate plans to monitor and measure the effectiveness of the company’s strategies in achieving goals, and identify areas for development and improvement to boost success and prevent failure. An employee, known as a “management accountant,” performs all related tasks.
Characteristics of Managerial Accounting
Management accounting is characterized by a set of characteristics that make it different from other branches of accounting, and its characteristics include the following:
- It is concerned with providing accurate and important data about the organization and helps in linking the data together and reading the meanings of the changing values.
- It measures the efficiency of the company’s strategies and plans and also helps the company’s management organize its financial, production, and other operations.
- It helps company managers make sound decisions and develop backup plans in case they have to.
- Management accountants work to monitor everything that happens in the company or its management, specifically to avoid any errors that may occur and to follow up on the progress of business.
- Management accounting has these characteristics that make it one of the most important departments in the company, and the management accountant is an essential partner in management and business organization.
The importance of managerial accounting for business
The importance of management accounting cannot be underestimated, especially in companies with commercial activity, because it plays an essential role in the following:
- Managing the company’s financial transactions, functions, and operational and non-operating expenses, such as registering and managing salaries, dealing with the company’s assets, filing taxes, and so on.
- Accounting administratively contributes to planning, preparing, and organizing steps to achieve the goals that the company has set as its goals.
- It measures and tracks performance while keeping track of the work’s progress and the company’s plans.
- It helps in properly and appropriately reporting the factors surrounding the company, which helps it succeed and avoid any risks that may arise.
- It manages the company’s resources in the best way possible, whether they are assets, financial resources, or human resources, making the most of every element the organization owns.
The role of management accounting in organizations
To assist the organization he works for in achieving its objectives and mitigating risks, the management accountant must fulfill four fundamental roles in the management accounting department of any organization.
Planning
The organization organizes strategic and operational plans to ensure the continuation of its work. It is crucial for management accountants to create programs that optimize the utilization of the company’s resources, while simultaneously gathering data to inform these plans and track their advancement.
supervision
The company will dissolve if it fails to achieve its goals. Therefore, it is important that the processes of implementing plans and following up on data are carefully monitored to ensure that work is progressing as it should, and the plans themselves need to be monitored to ensure their effectiveness and suitability to the company’s circumstances.
Organization
Organization means dealing with the resources the company possesses wisely and not wasting them. The resources intended here include capital, expenses, and revenues, as well as the company’s working competencies, assets, equipment, and so on.
Decision making
It is known that a plan that is developed for implementation over a long period of time may face variables that can be controlled, and it may also face other variables that cannot be controlled. Therefore, alternative decisions are a necessity that is not easy to abandon. Here, management accountants provide all the data and information that help in developing these alternative decisions and knowing the appropriate time to start activating them and working on them.
The goal of management accounting
When you employ a management accountant in your company, you are taking steps towards achieving the following goals:
- Activating the correct decisions related to managing the company’s financial and regulatory affairs, provided that their speed and transparency characterize them,.
- Monitoring business progress and collecting digital data that measures and analyzes the company’s performance level on a periodic basis.
- Monitoring and organizing the company’s operations.
- Providing accurate statistical and accounting information and data.
- Providing encouragement and motivation to the company’s work team with every success statement published while organizing the process of disbursing rewards to them.
- Preventing expected problems means that the management accountant can prevent the company from experiencing economic crises or other problems.
Principles of management accounting
Management accounting has a number of principles that organize its work and facilitate the collection and organization of data in its records. The following principles are the most important ones in management accounting:
- Organizing and collecting data abundantly and accurately, as long as it relates to all other departments of the organization.
- Measuring data related to other accounting departments and then using it to achieve management goals, so that steps are taken based on real information and evidence.
- Paying attention to reviewing the data and focusing on reviewing and scrutinizing it to prevent any decisions that cause losses in the long term.
- Do not be led by personal opinions and expectations, and focus only on objective facts without distortion.
- Focus on the primary role of management accounting in an organization, which is to help make decisions based on facts.
Management accounting methods
There is no specific number of management accounting methods because they are in a state of continuous development. Although there are many methods used in management accounting, we will highlight the most important of these methods as follows:
- The planning budget is prepared in a general meeting of the management departments to consider the company’s work and objectives, measure the extent to which its resources can achieve those objectives, and determine what it needs to reach its stated goals.
- Mathematical models which is a mathematical method whose goal is to describe the behavior of the accounting system accurately and clearly.
- Operations research is based on scientific methods to confront, overcome, and radically solve the problems in which the company is located.
- Statistical analysis, which contributes to understanding the administrative data collected by the accounting department,.
- The break-even point is the point at which profits and expenses become equal, and it is a dividing point after which it is determined whether the company is able to achieve its goals or not.
The difference between managerial and financial accounting
There are a number of differences between managerial accounting and financial accounting, although they are related to administrative work and help management make sound decisions. These differences are as follows:
| Comparison | Management Accounting | Financial Accounting |
| Scope of responsibility | Responsible for financial and non-financial data. | Responsible for tracking financial information in the organization. |
| The management you do | Internal management only. | Internal and external management. |
| the information | Secrecy. | Public. |
| Data type | Cash and non-cash. | Cash only. |
| Information recording format | It has no specific formula. | It has a specific formula. |
| Its importance | Evaluating performance and planning for the future. | Providing information about performance. |
| Accounting period | Prepared when needed. | One period (often a year). |
| Application in companies | Not mandatory. | Is mandatory. |
| Accounting principles | Not mandatory. | Subject to generally accepted accounting principles. |
The difference between management accounting and cost accounting
The most important departments of accounting are the cost and management accounting departments, which are two departments that integrate to enhance the development of enterprises and improve their ability to achieve continuous success. The following are some of the most significant differences between the two departments:
| Comparison | management accounting | Cost accounting |
| The basics | Collect all data related to the organization for quantitative and qualitative analysis. | Tracking expenses and costs related to production to calculate how much expense the company bears and reduce them to increase profits. |
| the use | It is used to plan for the future and make sound decisions. | Used to prevent exceeding the company’s budget. |
| the range | It expands to include all accounting departments, including costs. | Working with it is limited to expenses and payments only. |
| Reports | Cash flow reports, profit and loss statements, etc. | Cost reports. |
The role and tasks of the management accountant
The management accountant is the person in charge of administrative accounting in the organization. He is the one who carries out all of the work and fills out the reports. The Board of Directors consults him on decisions and plans for the company. Among his most significant responsibilities are the following:
Book management
Books are used to track the company’s financial data in general, whether that money was taken out in the form of expenses or received into the company in the form of profits, and the administrative accountant must keep those records.
Support the company’s budget.
Since management accounting’s primary goal is planning and decision-making, the accountant must help budget and initiative specialists maintain a certain financial limit that is not exceeded and at the same time obtain financing for projects, production, and development from capital. In this role, the management accountant cooperates with a number of other department employees. .
Track income and expenses.
The management accountant prepares reports on the income, costs, and finances of the organization, making sure they are clear to non-specialist managers and others.
Preparing payroll reports
In this regard, the work of the administrative accountant is concerned with reporting appointments, wages, and deductions from the company’s employees in order to reach the best management of the human resources department, motivate employees to reach the company’s goals, and maintain moderate spending and satisfied employees.
Submitting tax returns
The role of the management accountant in preparing tax reports and files cannot be underestimated because this role protects the company from falling under the penalty of the law if it is late in submitting its tax returns or any incorrect data appears in them.
Managing the organization’s inventory and assets
Inventory is one of the company’s resources, so the management accountant must follow it up and replenish it before it runs out and record its cost and any change in its prices. The same applies to the assets that the company depends on in its work and follows up on their efficiency and their need for maintenance or otherwise.
Management accountant skills
Not everyone who holds a degree in accounting is able to carry out the tasks of a management accountant efficiently because a management accountant needs special skills, including:
- Attention to detail is needed to develop the ability to detect errors and address them quickly.
- Communicate and collaborate with the team to create reports and files and plan for a better future.
- Mathematics skills are highly required to facilitate the handling, understanding, and analysis of financial data.
- Dealing with customers directly and the ability to manage discussions and provide sufficient information without excess or deficiency.
- Organizational skills are essential for him due to the multiplicity of his tasks and the importance of producing accurate and up-to-date work.
Management accounting qualifications
Although obtaining an appropriate qualification in the field of accounting may be sufficient to obtain a job as an accountant in various companies, the management accountant must have more experience and knowledge of the various accounting departments. It is also preferable to obtain accredited certificates, such as the Certificate of Experience in Management Accounting or the CGMA Certificate, to develop in the career field and work as a specialized management accountant.
Examples of management accounting
In an institution specializing in the manufacture and trade of men’s clothing, the company needs to open a new branch in one of the Saudi cities in which it has not provided its services before. However, during the Board of Directors meeting, the management accountant confirmed that the company’s budget covers the cost of the new branch by only 75% and that the remaining percentage may cause a deficit in the company’s balance of payments. The employee cited the following reports:
- Cost accounting reports that determine the unused percentage of the company’s capital.
- There are available alternatives that may be lower in cost than opening a new branch and contribute to expanding trade (such as an online store, mobile marketing vehicles, etc.).
Based on the reports and information provided by the management accountant, the company makes its decision unanimously in a way that suits the company’s resources.
The role of the Qoyod accounting system in management accounting
The Qoyod system stands out by offering all the necessary reports for a management accountant to gather, monitor, and evaluate data. It also contributes to maintaining data on assets and resources as well as employees in the company, so it helps to produce the best results and use the data in a way that serves the organization. Therefore, as long as you use the Qoyod accounting system, you will be able to improve the powers of department managers, evaluate performance, monitor the company’s financial operations, and organize your business with complete ease.
Conclusion
In the Management Accounting Department, decisions are made that guide the company to success by measuring the company’s financial and technical performance, contributing to the development of operational and other plans that help achieve goals, and obtaining the best accounting system that helps you conduct management accounting operations and record and analyze the required data. Try Qoyod’s free period to enjoy unprecedented organization and efficiency.
