A management accountant is in charge of reviewing the accounting information and financial records of the company in order to provide advice and assistance to the other managers and owners of the company regarding business decisions. They look at all operational business metrics of the business in order to produce their reports. This includes looking at the variances between projected income and actual income, costing information and relevant data. They are employed by private businesses, public companies and government entities.
What a managerial accountant does
- Review financial reports and accounting documents provided by the company’s other accounting team members
- Compile relevant financial summaries and financial forecasts
- Advise management on how to proceed based on findings
- They assist in business decision making and performance management
- They assist in risk management by suggesting changes to be implemented for identifying, assessing, and reporting financial risks within the company
- Assisting in cost analysis, financial forecasting, annual budgeting, price modelling, and other financial reports
Different tasks of managerial accounting
Below, we will discuss a few different types of managerial accounting. Most managerial accountants perform a combination of these functions:
A financial constraint is something that is tying up funds, thereby preventing the company from achieving its objectives. The management accountant will attempt to pinpoint the cause of constraints and how to lessen or remove them to improve productivity and workflow.
Inventory turnover analysis
This entails applying ratios to illustrate the number of times that a company sold and replaced inventory over a specific time period. By comparing the current ratios against other periods, the managerial accountant can help the managers and owners to identify trends and to make informed pricing, purchasing, production and marketing decisions. It can also identify decreased or increased product demand, which will impact their production decisions moving forward.
Product costing and evaluations
Product costing refers to the total cost incurred in producing a good, while cost evaluation refers to determining how the company’s resources are used. The materials. labor, consumable materials and manufacturing overhead costs are all included when calculating the internal costs. The cost is the standard cost and is then later compared to the actual costs to determine the product pricing later on.
Cash flow analysis
Cash flow analysis refers to tracing the tangible or electronic transfer of money and the way that it impacts the company’s financial standing. Examples include the company’s liquidity, rate of return on production and investment, measuring profitability, and risk evaluation.
This refers to the process of evaluating a business’ long-term potential capital and financial investments or projects. The financial investments include items such as machinery, buildings and equipment to be used in producing goods over many years. Capital budgeting makes use of cash flow projections rather than profits to determine whether the lifetime revenues will outweigh the lifetime expenses, as well as how long it will take to break even. However, as cash flow is used for this task, certain factors such as the depreciation of equipment and machinery are not taken into account.
Accounts receivable management
As it sounds, this entails overseeing the collection of customer payment within an agreed-upon period. This entails implementing electronic tracking systems to keep track of payments received and monies owed. This is important where purchases are made based on incremental payments as with cars, buildings, loans and other large purchases, especially where interest is involved. Proper maintenance of this system is important to promote customer satisfaction while ensuring profitability and debts being met.
How does managerial accounting differ from financial accounting?
|Managerial Accounting||Financial Accounting|
|Reports are provided to internal management||Reports submitted to internal management and relevant external parties|
|Records and presents information in a way that is concise, relevant and useful||Records and presents financial information according to Generally Accepted Accounting Principles (GAAP)|
|Prepares reports according to the required purpose||Prepares a standard set of reports|
|Reports are used for assisting management in making business decisions||Reports are used for advising customers and management regarding future financial decisions|
|Works with all accounting data||Only works with actual financial data|
|Not legally required||Legally required|
|Reports are produced as needed||Reports usually produced for the end of the accounting period|
Do you need a CPA to practice management accounting?
Although a Certified Public Accountant (CPA) license is technically unnecessary most entities will not promote an accountant to a managerial position unless they possess a CPA or other relevant advanced designation such as a Certified Management Accountant (CMA) certification. Although the Chartered Global Management Accountant (CGMA) certification is also designed to prepare its candidates for this position, it is relatively new and does not yet hold as much weight as the former two. Regardless, at the very least you will need a relevant bachelor’s degree.
Skills needed for managerial accounting
- Excellent communication and team skills
- Excellent mathematical and analytical skills
- Knowledge of business practices, generally accepted accounting principles (GAAP), basic local and federal tax laws and
- Critical thinking skills
- Basic accounting knowledge and real-world experience