The practical improvements contributed to the company
Management accounting is not usually used or implemented because it is not mandatory considering that its benefits are unimportant or of little value. But this type of accounting is important so as not to lose sight of the real benefits and the improvements it can bring to business practices.
We often talk about the accounting of a company to refer to financial management but, really, there is no single accounting. There is administrative, financial and management accounting.
With financial accounting is not enough, you need a tool that breaks down the relevant information and that is where management accounting comes into play by adding information so you know everything you need about your business or your company, from the stocks until the control of the management, going to calculate the costs of all the services, activities and products.
What is not defined cannot be measured, measured can not be improved, improved, always degrades. William Thomson “Lord Kelvin”, physicist and mathematician.
Although Lord Kelvin referred to experimental thermodynamics, this quote can be applied perfectly to business management. Hence the importance of management accounting or management accounting, which helps the company to collect financial and non-financial information, to classify, order and present to improve decision-making, control, planning and management in general of the society. Even so, there are many companies that still do not have an established management accounting model because they consider that the benefits they bring are less than the resource expenses involved.
Classification of management accounting
Although cost accounting is a fundamental part of management accounting, there are large differences between these two processes. It could be said that management accounting is classified into two types: analytical accounting and decision making. Well, cost accounting is a part of analytical accounting.
This is where we find the first differences because a company can perform cost accounting. Without the need for management accounting (It can serve you with analytics simply). However, management accounting needs a broader approach. So it is not possible to carry it out without having the costs.
In the same way, the tools used to measure both accounting are not the same. Management accounting is useful for one that contributes to decision-making, such as Integral Control Panel. Costs, on the other hand, can be calculated from budgets, for example.
The objective of management accounting
Other differences are related to the objectives pursued by both types of accounting.
Management or management accounting records financial operations and reports them to the company’s financial statements for three purposes:
- Know and control costs.
- Help in making decisions.
- Facilitate planning
Meanwhile, cost accounting deals with the costs of the production of goods and services of the company. This allows to value the assets, evaluate the yields, analyze the results and control the business management.
For this, it usually has its own internal standards of the company. However, cost accounting follows generally accepted accounting principles (GAAP), although it is not mandatory that you do so.
We can go further and say that management accounting uses information for strategic decisions. For its part, the cost is more focused on the monetary issue, to optimize costs.
The time period of management accounting
Management accounting focuses on the period of time you want to measure, whether semi-annually, quarterly, monthly, weekly, etc. These periods are previously defined and will be chosen according to the needs that arise. In contrast, cost accounting is a continuous process, so the information you need and present is not so limited temporarily speaking.
In summary, it can be said that management accounting has a broader focus than cost accounting that focuses only on the production costs of the company.
Improvement of cost management accounting
With the managerial accounting, we will be able to speed up the classification of the expenses of the company by nature. That is, we are talking about a more exhaustive detail of the expenses made to improve its control and management.
Let’s take the example of a company with a large number of workers in mobility. Financial accounting, the only mandatory requirement, will tell us how much employees spend on business trips, in general. At most, you can specify how much accommodation, how much in transportation, etc. The management accounting goes further and allows to detail much more the type of expenses in particular: how much in a taxi, in public transport, in mileage with private car, etc.
Following the example, we can discover that the departure of taxis is very high and we can study new possibilities such as reaching an agreement with the most used or habitual taxi company, promoting the use of public transport for business trips, buying company vehicles for journeys short or intra-urban or even provide bicycle workers.
With detailed and updated information we can adapt the decisions, policies, and actions made to the reality of the company and the needs of its workers. The improvement of the management that is made of the costs goes through better control of the fulfillment of the budget. Budget execution can be followed in detail to detect problems, deviations, bad practices, unexpected expenses, etc., and have full control of the use made of the company’s economic resources.
Following the previous example, in the case of an increase in workers’ travel expenses, it will be much easier to detect the source: taxi rates increase, the price of gasoline increases, etc.
Facilitates the calculation of profitability
Management accounting also allows a better imputation of expenses by departments, by cost centers, even by clients and projects. With this information, you can study the profitability of the work done, know how much has been earned for each particular client, each order, etc.
This also allows improving the efficiency of the company: enhancing clients or types of projects more profitable than others, reorienting the business if necessary, increasing profitability with the analysis of indirect costs, etc.
It is equally applicable to the departments or cost centers of the company. With management accounting, we can calculate profitability taking into account other factors. In addition to purely financial ones, such as, in case of having several establishments. Knowing which is more profitable or knowing the return generated by the marketing department or the financial department. Two types of departments that, properly speaking, their productivity do not have a direct economic return.
Similarities between management accounting and cost accounting
Both types have aspects in common despite the differences:
- These are processes for internal use. That is, they are focused on management, planning and decision making within the company and have no use outside it.
- These are two processes that are not mandatory, but companies can decide to carry them out voluntarily.
- Regarding the data provided, these do not have to be exact in any of the two accounts. Both can be subject to oscillations derived from different variables. For management accounting, these fluctuations serve to make future predictions.
- Both prevent events that have not yet occurred.
- Both are very important for companies because they help managers to make decisions at the highest level.
- These two accounts are focused on planning, management, and decision making Inside the company.
- They are complementary. Although management accounting groups the costs for liability, products, activity, projects or function, the cost contributes a permanent inventory that improves that economic information.
Knowledge is power
With these examples, it is clear what management accounting can contribute to any company. But often the problem lies in the difficulty of getting the necessary information. There are expense management tools that can provide very important data. And save work in the realization of a management accounting plan
This is the case of Captio, which allows its users to quickly. Agilely and automatically classify business travel expenses according to their type. But also by departments, cost centers or even workers, payment methods, etc. All this information can be exported by the user. So that the data can be analyzed and classified in a way that is convenient.