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Managerial Accounting / Management Accounting

‘Management Accounting’ or ‘Managerial Accounting’ consists of accounting information provided to managers within organizations in order to enable them take suitable business decisions. Such decisions enable the managers to exercise their control and management powers more efficiently.

The main difference between ‘Management Accounting ‘ and ‘financial accounting’ is that the former is confidential and meant for managers within the organization, while the latter available for use by regulators, creditors, investors and shareholders. Infact, information in financial accounting can be considered as a subset of Management Accounting since the latter contains all the information in the former apart from additional information. Another important difference is that while financial accounting has to comply with international accounting standards like GAAP (Generally Accepted Accounting Principles-US), Management Accounting has no fixed format. It is normally computed by reference by and according to the requirements of the managers.

• Financial Accounting is prepared based on historical information. They are prepared generally for a period of 12 previous months. Management Accounting on the other hand, is future-oriented and does not have any specific time period.

• Ø  There is no legal requirement for companies to use management accounting for their

•        functioning. But financial accounting is compulsory by law for public limited companies.

• Ø   Financial accounts of public companies need to be reviewed by independent auditing firms      

•       while management accounting does not require any such review.

• Ø   Generally management accounting is made use of by multinational and big companies.   

•       Financial  accounting is done in all business entities.

Ø    Management Accounting deals with many areas which are not generally touched by financial  

       accounting. Some such areas are cost analysis, cost-benefit analysis, cost-volume-profit

       analysis, life-cycle cost analysis, client profitability analysis, product profitability, price modeling

       sales forecasting, cost allocation and capital budgeting.

Management Accounting is extensively used for strategic management, performance management and risk management by the managers in organizations. Management Accounting is instrumental in devising several Accounting practices aimed at increasing organizational efficiency. Activity Based costing (ABC), Lean Accounting, Resource Consumption Accounting (RCA), Throughput Accounting and Transfer pricing are some such important accounting practices.

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