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What You Need to Know About Managerial Accounting

The Northwest Missouri State University Bachelor of Science in Accounting – Managerial online program emphasizes managerial decision support. It prepares students for leadership roles, including financial manager, budget manager and internal audit manager. Managerial accounting has a unique focus on internal reporting in the interest of strategic decision-making. Here, we look at its importance, comparisons to financial accounting and the benefits of focusing your career on opportunities in managerial accounting.

The Fundamental Differences Between Managerial and Financial Accounting

Financial accounting focuses on reporting financial transactions to outsiders and offering guidance on how to allocate resources among companies. In contrast, managerial accounting helps track costs and estimates to strategically allocate resources within a company. A financial accountant reviews historical information, while a managerial accountant makes future projections by interpreting data. Most critically, financial accounting is highly objective, involving factual analysis of historical data, while managerial accounting is more subjective in using data to forecast the future.

A Quick History of Managerial and Financial Accounting

Managerial accounting was introduced in the late 1800s to provide the necessary accounting information needed to manage production. It supplies operation metrics managers use to make informed economic decisions, improve operational efficiency and plan business growth strategies. Leadership distributes these reports internally.  

Financial accounting first took root in the early 1900s to inform constituents outside of an organization about its business performance and financial records. In addition, it supports the growth of new credit, governmental regulations and taxes. Once it became standard practice, public companies were required to provide external financial reports, which the Securities and Exchange Commission (SEC) now regulates through generally accepted accounting principles (GAAP).

Estimates and Projections Versus Historical Data

Managerial accounting includes trend analysis and forecasting of variances in order to improve future projections, capital budgeting to help determine what expenditures to consider and product costing to measure the total costs of production. Techniques include margin analysis, which calculates the breakeven point to determine the ideal sales mix for the company's products; constraint analysis, which identifies bottlenecks that create financial inefficiencies in an organization; and trend analysis, which focuses on trends and variances.

Managerial reports focus on strategic considerations such as daily and weekly budgeting and operational efficiencies, which often include estimates and projections. Managerial accountants and the executives to whom they report use this information to track deviations from budgets to actual results. They also use them to check the impact of business decisions and understand cause-and-effect relationships.

Financial accounting uses standard accounting practices (GAAP) to compile historical information from invoices and accounts receivable balances to develop high-level data. It is about recording, summarizing and creating factual reports. Financial accountants apply the discipline to produce balance sheets, cash flow statements and income statements that help investors and the media, as well as other constituents like tax professionals and creditors understand a company's performance and financial strength.

Strategic Thinking, Strategic Value

Managerial accounting is indispensable to a company, as it enables executives to strategize, plan, organize and direct financial resources. It uses both quantitative and qualitative information to aid in decision-making and understanding progress toward larger performance objectives. For this reason, expertise in managerial accounting can help professionals enter into strategic financial support roles that are in high demand and offer exceptional compensation. The average managerial accounting salary in the United States is $110,752 as of September 2021. Directorial roles typically earn $160K.

As a management accountant, you may work for large multinationals, public companies, private businesses or government agencies. In most roles, you will help your organization budget and improve financial performance, manage risk and make more innovative investments. Higher-up roles you can pursue with more experience might involve supervising a team of lower-level accountants who will handle basic accounting tasks like recording income and expenses and tracking tax liabilities. Your expertise and leadership will factor into many of your organization's most important decisions.

If you envision yourself as a strategic asset to an organization, are captivated by numbers and data analysis and hope to influence executive decision-making, a career in managerial accounting may be right for you.

Learn more about Northwest Missouri State University's online B.S. in Accounting – Managerial online program.

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