An Introduction to Management Accounting

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Management accounting is a part of accounting that deals with the internal accounting and financial needs of the business. Usually, people confuse management accounting with financial accounting. However, both types are completely different. Whereas financial accounting merely focuses on the external reporting and history of an organization, management accounting focuses on in-house accounting needs. Yet, both of them work together to eventually provide the organization with a finalized accounting report on a monthly, quarterly, or annual basis.

In computer accounting, management computer accounting is usually made a part of the financial accounting software in order to provide stakeholders and corporate customers with accurate cost information. However, it should be remembered that the integration of management accounting into cost accounting is only observed in some cases of computer accounting.

Usually, management accounting departments are seen in manufacturing companies because of the need of an in-house system to calculate the cost of the products being manufactured. In such an environment, management accounting typically focuses on deciding the cost of the processes. In addition, management accounting does have a role in financial transactions. The job of the management accounting department is to control the quality, quantity and expectations linked to the manufacturing of products. Cost accounting is therefore an integral part of management accounting, especially since it is used to analyze and determine budgets, profits and loss ratios, and the costs occurring during the manufacturing processes.

Another popular term for management and cost accounting is Activity Based Accounting. Activity Based Accounting, or ABC, is used to measure the exact activity cost in order to assign indirect costs to products. However, this particular system is rarely used by companies because it is expensive to implement. Activities and the methods of measuring the cost of those activities can differ dramatically; therefore it is best to work with the basic strategies of management accounting.

Further reading: Corporate Governance | Audit | Performance Improvement

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