We invite you to read this interesting article where we will explain in great detail the management accounting, its characteristics, classification and much more.Management accounting
It is defined as a discipline aimed at information for internal purposes of an organization or company.
It is a very useful instrumental strategy of a company.
It is considered as the source of an information system for business management, since it allows knowing the results of the different areas and of the company as a whole.
Management accounting acts by directing the decision-making process.
This process must be carried out if attention is paid to the following basic purposes of any company:
- Inventory Valuation
- Planning and Control
- Decision making
The presence of management accounting in the development of organizations is undeniable, as it generates timely and truthful information for management.
Likewise, it responds to the needs of the organization in response to the impact of the environment.
In another order of ideas, management accounting must be functional as the organization or company becomes more complex and competitive, in this case a more exhaustive management control mechanism is necessary.
Main objective of management accounting
We will mention the Argentine Professor Oscar Osorio, in his participation in the Accounting Congress, sponsored by the ANEC in 1999.
This scholar of organizations pointed out that the main objective of management accounting in today's company is:
“Allow the adoption of rational decisions that make competitiveness possible, for which the following should be taken into account: The external context through the strategic approach, the continuous improvement of internal production processes, qualitatively and quantitatively considered, the control and strategic management of costs across all functions and segments of the organization.
In this sense, it must be understood that the objective of management accounting must be the recording of operations, in addition to serving as support for the financial statements of the Corporation based on three moments or realities:
- Know and control costs.
- Help in decision making.
- Facilitate planning.
New management accounting technologies
The changes that occur in the environment of the organization or company produce an internal impact that needs to be identified, analyzed and responded to, devising management technologies.
In this order of ideas, the new technologies consist of the development of procedures that allow the optimization of the available resources to achieve the proposed objectives.
Given this reality, it is essential that management accounting offers the opportunity to generate a capacity to respond to the influence of these changes.Examples of new management accounting technologies
To illustrate the foregoing, the following examples of new management accounting technologies are presented:
- Strategic Management Accounting, as a fundamental support support.
- New Measurement and Control Systems (Just in Time), administrative techniques with response capacity that allow modeling the situation.
- Total Quality Control, administrative technique that allows the evaluation of the process or product development, depending on the vision or mission of the company.
- Target Cost, determine the reliable range of the cost structure.
- Activity Based Management (ABC and ABM).
Management accounting functions
We will detail below the main functions of management accounting:
Management Accounting Time Period
Management accounting, due to its nature, focuses on measuring the time period in which the events that can be measured occur.
It means that it will be indicated if it is semiannual, quarterly, bimonthly, weekly or others. The characterization of the term is determined by the information that is needed as an input for planning or in the decision-making process.
Detection of company needs
This function is of vital importance for organizations.
If the needs of the company have been identified in its different dependencies or departments, such as: Personnel, supplies, transportation, tax payments and others, management accounting will allow adapting decisions that favor the satisfaction of business needs.
Another important aspect that we must highlight is that the improvement in budget control reflects the optimal management of cost management accounting.
Budget execution is easy to monitor to identify problems, unnecessary expenses, deviations, malpractice or others.
This diagnostic process allows the company to have an effective control of the availability of resources and generate real alternatives for decision making.
Management accounting makes it easy to calculate profitability
In this sense, we must explain that management accounting allows objective monitoring of the allocation of expenses.
The organizational structure of the company must be considered, such as departments, clients, raw or processed material.
It is necessary to highlight the importance of this function, because with access to this information the profitability of the work carried out can be determined, thus allowing the calculation of profits by departments, clients and projects.
As an additional value, the efficiency of the company can be improved, promoting viable projects that allow attracting new potential clients and reflecting an increase in profitability through cost analysis.More on management accounting
Management accounting is not only effective in the financial field, but in other business activities, such as the Marketing Department.
In the case of this department, it would allow us to determine the elements that would contribute to making it more competitive and profitable.
This action would lead to refine the design of a sustainability policy over time.
On the other hand, we continue to make known that management accounting is a process that takes place within the limits of the company and is a technique that generates reliable information for planning and decision-making within the corporation.
The data provided, allow evaluating the behavior of internal accounting regardless of whether the data is accurate or are mere oscillations.
In this way, all the information thrown contributes to project scenarios in time.
Management accounting and cost accounting
Cost accounting is considered as an important part of management accounting. Their fields of action are perfectly delimited.
In this context, management accounting is classified under analytical accounting and decision making, while cost accounting is a component of analytical accounting.
Both disciplines are independent. It is feasible to carry out cost accounting without the need to practice management accounting.
However, for a financial manager it is very useful to have the results of a cost accounting, as an integral element of his planning or to facilitate the alternative to make the corresponding decision.
In this link you will get more information about cost accounting The importance of Cost Accounting
These disciplines act as different tools, for example, cost accounting applies to the calculation of operations from the budget, while management accounting constitutes an extraordinary pillar in the decision-making process.
Similarities between management and cost accounting
We establish below the main similarities between these important managerial processes.
- They are processes for internal use, both focused on the analytical study of budget expenses, management, planning and decision-making of the company.
- Both processes are voluntary, without the companies being able to decide to take them or whether they are contemplated by law.
- With respect to data management, these do not have to be exact, in either accounting, since they can be the result of intervening variables that can affect the veracity of the data.
- The two accounts have a preventive nature, their data allow management scenarios to be managed in the future.
- They are highly relevant for companies as they provide important data that helps high-level managers make decisions.
- Both accounts are applied to planning, management and decision making within the company.
- They are complementary, since management accounting groups the costs by responsibility, products, activity, projects or function, cost accounting provides an inventory and additional management of the company's budget that improves this economic information.Management Accounting Example
Below is an example that illustrates management accounting.
Suppose a company dedicated to the training of personnel in different industries located throughout the national territory
It needs to transfer 30 trainers on the use of computers, aimed at the workers who make up these industries.
The 30 supervisors must travel regularly to different regions and generate transportation, food, per diem and hotel room expenses.
The Accounting Department presented a report containing the financial flows of the situation generated by these disbursements. (Cost accounting).
The president of the company convenes a work meeting of the different departments that make up the organization to develop a strategy with the aforementioned management accounting report as the main source.
The heads of the departments brought the proposals that could mitigate this financial effect that produces a great economic impact on the development of the company.
The cost accounting report provided reflected a critical situation in relation to the expenses generated. Once the causes have been identified, the need arises to develop a design and execution of measures to mitigate these effects.
As a result of this situation, proposals arose such as: Using the mass transportation service (buses) instead of airplanes or taxis, or renting lines of private vehicles that provide this service to supervisors.
Regarding food, exhort the trainers in the selection of cheaper restaurants or fast food outlets. Explore the possibility of contracting houses that could offer food service at a lower cost.
Regarding accommodation, an interesting alternative arises, the creation of an agreement between the company and the hotels with the purpose of conciliating a preferential agreement of lower cost, considering that the trainers stayed in them with a high frequency.
Travel allowances were not considered as they are the means of responding to any contingency or unforeseen event that may arise in the exercise of their functions.
In this way, it is demonstrated how management accounting operates in the company, providing satisfactory solutions to the situations that organizations experience.
New challenges of management accounting
To finish, you should know that the last 20 years of the XNUMXst century have been marked by cycles of great crises and events in all areas: Social, economic, political, cultural.
Even health has been affected with the appearance of Covid-19, altering the environment in which activities take place in corporations.
Faced with this event, organizations have only two options left:
They change their structures and functions in order to adapt to the competition to carry out the same strategy, or conceive of adapting to these signals that shape the company's response capacity.
The product of the changes is reflected in the adaptation as a means of surviving against the effects of said disturbances, the only thing left is the design of the strategy as a means of contextualization to conceive a flexible and efficient management model.
The contributions of management accounting are undeniable in running a company, especially in decision making.
However, the main problem is the difficulty of obtaining reliable information that allows the use of this tool as an effective response.
We must conceive of management accounting as an activity that takes place within a company and acts in the generation of a management information system.
Thus, it acts as an assistant to the company's government in planning and decision-making.
Observe the audiovisual material that complements what is explained in this post
https://www.youtube.com/watch?v=h_Tu3KcAuYw