What is management accounting?

Administrative accounting is a system that provides information to the administration in order to facilitate its functions in the planning and decision making, which allow you to differentiate yourself from other companies.

It refers specifically to the administrative aspects of the company and its reports are for strictly internal use and will be used by the owners and administrators to evaluate the development of the company with respect to the goals, policies and objectives pre-established by the management or direction of the business.

Also called managerial administration. It is the one in charge of providing reports based on the accounting technique that helps the administration and management to create planning and control policies for the operation of the company.

Characteristics of management accounting

It is necessary to differentiate it from financial accounting in order to establish a series of hallmarks of said accounting.

• Provides company information, both internal and external.
• The reports that are prepared must be concise and detailed, so that the company's managers can make decisions efficiently and effectively.
• It is based on a wide variety of information as well as, of course, on accounting data.
• It focuses on the details of the different departments that shape a company, for example, in inventories, equipment, in the activities of different areas.

How Management Accounting Works

• Produces information for internal use, for example:
• Formulates, evaluates and improves operating policies for the company.
• Study all areas of the company, and recognize efficient areas and those that are not.
• Plan and control daily operations.
• Know all the costs of different products or processes, in order to achieve cost leadership within your performance sector.
• The administrative accounting it is focused on the future and this information is the reference point for planning.
• It is not regulated by financial information standards, it simply adjusts to the needs of each user. It is an optional information system, they must be presented for consideration of the shareholders' meeting. Companies do not necessarily have to keep administrative accounts.
• It attaches greater importance to qualitative data and costs and uses them in the analysis of decisions as estimates to predict the future of the company.
• Emphasizes areas of the company as information centers for decision making.
• It draws on disciplines such as finance, statistics, economics, operations research, to complete the information presented, in order to provide solutions to the problems of the organization.

Role of Management Accounting in Planning

In the planning or planning process, a series of actions are designed to be followed to achieve the objectives also proposed, these actions are help with administrative accounting, especially in the operational part, through the use of tools such as: budgets, cost models, etc. That allow achieving a competitive advantage or an attractive position within the industrial sector where the company is immersed.

Role of administrative accounting in administrative control

Administrative control is the process by which the administration ensures that resources are obtained and used efficiently, based on business objectives.

The information obtained with the administrative accounting It is very useful in this control process from different perspectives:

1. To communicate timely information about what the company management wants me to do.
2. To motivate human resources to act in pursuit of business objectives.
3. It helps to evaluate the results how good results are obtained.

In view of the above, administrative accounting is necessary to exercise better control. After an operation is completed, the results should be measured and compared. Administrative control is carried out in all areas, through the reports generated by each of the areas, which allows detecting problems and it leads the administration towards it to carry out the corrective actions and achieve the effectiveness and efficiency in the use of the company's resources.

Role of Management Accounting in Decision Making

Making a good decision requires a whole process, which can be broken down as follows:

• Analysis
• Recognize the existence of a problem.
• Define and delimit the problem.
• Search, obtain and analyze the necessary information
• Decision
• Propose alternative and select the best one.
• Put into practice
• Put the selected alternative into practice and monitor its efficiency following an action control plan.

Within the process, the quality of information provided by the administrative accounting, It helps to make the decision the best and to exercise adequate and timely control.

It is evident that the quality of business decisions, whether small, medium or large, depend on administrative and economic information available, therefore for a company to develop normally and achieve the success of its economic goals it must have a good system of information.

Objectives of management accounting

After analyzing the way in which this branch of accounting helps to plan, make decisions and control, it can be concluded that by mentioning its main objectives, among which are find:

• Provide useful and necessary information for the costing of products, services and other aspects of administrative and economic interest.
• Help managers carry out short and long-term tactical guidelines.
• Facilitate and support the decision-making process, with reports that include relevant and timely information.
• Serve as support for administrative control, as a feedback tool for the different areas and managers of the company.
• Help to evaluate the performance of the different areas and their respective responsibilities in meeting and achieving the objectives set.
• Motivate human resources in general towards the achievement of business objectives.

We invite you to visit this article to delve into this topic:

• Management accounting examples