From the course: Accounting for Managers

What is management accounting?

From the course: Accounting for Managers

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What is management accounting?

- Before we explore your needs as a manager in too much detail, let's take the time to understand a little bit more about what management accounting is. Over the years, I've been asked several times what type of work I do. Now, to simplify these conversations, I've typically just said I'm a management accountant, and leave it at that. For some folks, this is enough to end the conversation, although I might get a cursory, "Are you?" If I'm lucky, they'll say, "Okay, so, you look after numbers "and that kind of stuff?" In the past, I've kind of just rolled with it, given how difficult it can be to explain management accounting to the layperson. But around 2013 at a kid's birthday party, someone showed a little bit more interest than what I'd become accustomed to. A fellow answered me with a, "Yeah, right, so you do debits and credits "and that kind of thing?" I said, "Yeah, look, close enough." But he wasn't done with yet. He then asked me, "Well then, explain to me how it's different." Sheesh, how inquisitive can someone get? But the very fact I struggled to come up with a concise answer was enough for me to go home and reflect. I searched the web, and nearly all the definitions I found were along the lines of, "Management accounting deals with the use "of accounting information "to managers within an organization," which is pretty much like saying, management accounting is about providing accounting information to managers. No kidding! So, what I found works best is to explain management accounting by comparing it with financial accounting. Now, financial accounting is about how an organization tracks and reports on its day-to-day transactions, whereas management accounting is about how this financial data and other non-financial information can be used in a way that helps an organization achieve its goals and objectives. Financial accounting has very strict rules that govern how transactions need to be coded and reports be presented, whereas management accounting only has guiding principles with flexible products created based on whatever your needs are as a manager. So, in essence, management accounting is kind of like the art of accounting. Now, whilst it's a stretch to think that you'll one day see a spreadsheet or a dashboard hanging next to the Mona Lisa, management accounting certainly gives your organization an opportunity to be more creative in how it tracks and measures its performance. Now, the end result of this, of course, is that management accounting will give you the information needed to steer your business in the right direction.

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