An Overview of Management Accounting

Management accounting uses both financial and non-financial information and is generally intended for the use of internal users, such as managers and executives, who use the information to make decisions that help achieve the goals and objectives of the organization. The only limitations placed on managerial accounting are those imposed by the value-added principle, which states that the only actions that should be taken are those that add value to the product or service. Managerial accounting typically focuses on current and future time frames.

Examples of financial information used by management accountants include sales growth, profits, return on sales, and market share. Examples of non-financial information used by management accountants include customer satisfaction levels, product quality, performance of competing products, and customer loyalty.

Management accountants use financial and non-financial information together to aid in business decision-making. For example, a management accountant could note that sales growth has fallen at a rate comparable to a reduction in customer satisfaction. Further investigation could reveal that during the same time period, cheaper product materials were purchased which caused a reduction in product quality. Using this information, the management accountant might determine that reduced product quality caused a decrease in customer satisfaction which, in turn, caused sales to fall. This may lead to the decision to purchase higher quality materials at a higher price.

Management accounting is more than just working with numbers and evaluating past financial performance. Management accountants evaluate both financial and non-financial information in an effort to improve the overall current and future performance of an organization. The information provided by management accountants helps management within an organization make decisions including, but not limited to, which products to offer, how to improve processes, whether to purchase new equipment or software, and how to improve customer relations.

Accounting Data Used