Managerial accounting is the type of accounting that provides financial information to managers and decision-makers within a company or organization. Managerial accounting, such as weekly or daily budgeting, is used to help managers make decisions that increase the organization's operational effectiveness and efficiency.

Managerial accounting is different from financial accounting in that financial accounting is centered on providing quarterly or yearly financial information to investors, shareholders, creditors, and others outside the organization. Conversely, managerial accounting is used internally to make efficiency improvements within the company.

Objectives of Managerial Accounting

1. 1. Type of data: This information includes financial and nonfinancial data to help managers with strategic planning and decision-making (e.g., the cost of products, budgets, cash flows).

   1. Providing information for decision making and planning: Virtually all major decisions by internal users (i.e., managers) rely largely on managerial accounting information.

   2. Assisting in directing and controlling: Directing and controlling day-to-day operations requires a variety of data about the process of providing a good or service.

1. Directing operational activities: The management team needs data about the cost of providing goods or services in order to set fees and prices.

2. Controlling operations: Management compares actual costs incurred with those specified in the budget (e.g., analyzing and comparing actual performance to budget plans).

3. Attention-directing functions: The attention-directing function of managerial accounting information directs managers’ attention to issues that need their attention (i.e., it highlights successful or problem areas).

a. No solutions, merely information: Managerial accounting reports rarely solve a decision problem, however, these reports often direct managers’ attention to an issue that requires their skills.

1. Motivating managers and employees: A key purpose of managerial accounting is to motivate managers and other employees to direct their efforts toward achieving the organization’s goals. This motivates managers to achieve the organization’s goals by communicating the plans, providing a measurement of how well the plan was achieved, and prompting an explanation of deviations from the plan.

   1. Budgeting: One means of achieving goals is through budgeting. The budget indicates the top management’s desire to allocate resources and emphasize certain activities.

1. Explain deviations: When actual operations do not conform to the budget, managers will be asked to explain the reasons for the deviation. This creates both an incentive to conform with the budget and possible negative consequences.

1. 1. Empowerment: Another way to motivate employees to assist in achieving the organization’s goals is through empowerment. Employee empowerment is the concept of encouraging and authorizing workers to take the initiative to improve operations, product quality, customer service and reduce costs.

1. 1. Rewarding performance: Many large corporations compensate their executives, in part, on the basis of the profit achieved by the subunits they manage.

   1. Measuring performance: Another means of motivating employees’ toward the organization’s goals is to measure their performance in achieving their goals. Managerial accounting measures performance for both the entire organization, as in financial accounting, but also for many subunits as well (e.g., divisions, departments, managers).

   2. Assessing the organization's competitive position: A crucial role of managerial accounting is to continually assess how an organization compares with the competition, with an eye toward continuously improving. Evaluation: This allows the firm to evaluate its financial and internal performance, customer satisfaction, and innovation compared to other similar firms.

1. 1. Professional ethics: As professionals, managerial accountants have an obligation to themselves, their colleagues, and their organizations to adhere to high standards of ethical conduct. Practitioners of management accounting have a responsibility act with:

1. Competence:

1. Continuing education: Maintain profession competence by continuing education.

2. Act legally: Professional duties must be performed legally.

3. Diligent in their work: Prepare complete and clear reports and recommendations after appropriate analyses of relevant and reliable information.

1. Confidentiality:

1. Keep confidential matters confidential: Do not disclose confidential information, unless legally obligated to disclose it.

2. Monitor and inform subordinates regarding confidentiality: Inform subordinates as appropriate regarding the confidentiality of information acquired in the course of their work and monitor their activities to assure the maintenance of that confidentiality.

3. Refrain from using confidential information: Do not use or appear to use confidential information acquired in the course of work for unethical or illegal advantage.

1. Integrity:

1. Avoid conflicts of interest: Avoid actual or apparent conflicts of interest and advise all appropriate parties of any potential conflict.

2. Refrain from activities conflicting with ethical duties.

3. Do not take gifts that create or suggest an impropriety.

4. Do not undermine an organization’s goals.

5. Communicate professional limitations that would impair performance.

6. Do not discredit the profession.

1. Objectivity:

1. Communicate information fairly and objectively.

2. Disclose all relevant information.

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