To understand how a business works, you ne to obtain and analyze information about its financial status. This is what management accounting is for: it helps control the company’s important financial indicators.
In this article, we explain how it differs from accounting, how to build it, and what types of reports to use. We share templates of reports for management accounting and examples of their use.
Management accounting: features, goals and objectives
Management accounting is a system of control and analysis of financial indicators, intend for internal use in the company. It is not just a set of numbers and tables. Management accounting is ne by managers, because on the basis of this information they can make decisions about business development.
With the help of management accounting you can:
- understand how much a company spends or how effective its trading is;
- assess the profitability of goods or services;
- understand whether the product is in demand among users;
- ruce expenses of the entire company or its specific divisions;
- assess the level of effectiveness of the company’s development strategy ;
- find weak points in business processes and optimize them.
That is, bas on data and reports, managers can make decisions about how to build pricing policies or what expenses should be cut.
Differences between accounting and management accounting
Accounting and management accounting are often confus. But these are two different tools that solve different problems. In short, accounting in Russia must be kept, since the Feral Tax Service calculates taxes using such data. If you do not keep a book of income and expenses, do not submit 6-NDFL according to all requirements, the company will receive a fine from the tax authorities.
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Although the objects of management and accounting are the same, these types of accounting have many differences. It is not necessary to keep management accounting, it is ne for the convenience of the entrepreneur. You can record nothing at all, except for accounting. But there is a risk that because of this you will miss important points:
Who maintains management accounting?
The choice of who will conduct management accounting depends on the characteristics of the business: its specifics, size and financial capabilities.
Types of management accounting
Taking into account the planning period, two types of accounting are distinguish.
Current accounting. Its main task: control of the current activities of the company, analysis of results and search for problems. For example, at the end of the month, the owner of an online store analyzes the demand for goods for the last two months and understands what to buy for the next two months. In this case, the entrepreneur keeps current accounting.
Strategic accounting. The purpose of such accounting is to draw up a company work plan for a year or several years ahead. For example, a company wants to enter a new market. To choose a market and determine the direction of business development, it is necessary to analyze the state of the business, market trends, and the specifics of the niche in the country.
Management accounting methodologies
There are many methods of management accounting, we will talk about three main ones:
- Process accounting. Costs are calculat for individual production processes. This method of accounting is us in companies with mass production and a small number of types of goods.
- Process accounting. This option is us to account for costs in production, where raw materials undergo several stages of processing. For example, the method is us in the oil refining industry.
- Job-bas accounting. Costs are calculat for each individual order or project. This accounting methodology is us in companies with individual production. It is suitable if the company produces goods strictly in small batches or offers exclusive services.
Types of reports for management accounting
There are many reports for management accounting, let’s look at the three most basic ones.
VAT reportThe cash flow statement is one of the key documents that allows you to track the receipt and expenditure of money over a certain period.
It is conduct for several purposes:
- The report shows how the company generates and uses finances, what the balance of funds is in the account and whether there is a risk of cash gaps.
- By analyzing the receipt and expenditure of money, the manager can make a decision about attracting investments.
- The report helps you identify liquidity issues, such as delays in customer payments. This allows you to consider cash flow optimization measures to improve the financial health of your department or company.
Profit and Loss Statement
The income statement shows how much money is left after all expenses are duct. It is kept to assess the financial health of the company. For example, a business owner notices that net profit has decreas, but sales have not fallen. He opens guide: stylish wordpress online store with two tools the income statement, studies it and understands that this is due to increas costs for website maintenance, logistics and utilities.
Knowing the reason, in practice you can find a way to solve it. For example, change the logistics route or choose another transport company. Or install an automatic water and electricity shutdown system to pay less for utilities.
Why do you ne a profit and loss statement:
- It provides information on how much the company earn and spent over a certain period. The report takes into account additional sources of income, fix and variable costs.
- The report allows you to track changes in profit over time, which helps to identify the factors influencing its growth or decline.
- With its help, an entrepreneur or accountant identifies ineffective expenses and can optimize them.
Management balance
Management balance sheet is a report that shows how much money is on the company’s balance sheet. Both assets and liabilities are taken into account.
Assets. These are all the values that belong to the company and can be us to create profit. Assets are divid into:
- working capital: cash in hand, money invest in goods and materials, customer accounts receivable, etc.;
- non-current assets: equipment, furniture, machinery, real estate.
Organization of the implementation of management accounting in the company
Management accounting for each company should be unique, because everyone has different business processes, different goals and strategies. Therefore, you should not thoughtlessly implement management accounting, it is worth following three steps.
1. Set accounting goals
Setting up management accounting requires defining phone number it your goals. This first step will help you choose the reports you ne and the data you ne to collect with them.
To set goals, analyze what issues ne to be address with management accounting or what decisions ne to be made. Identify clear metrics to track. This could be profitability or liquidity accounting.
2. Select and develop the necessary report forms
You ne to understand which reports will help you collect data and achieve your goals. For example, if you want to ruce the volume of illiquid goods, you ne to:
- examine the goods in the warehouse and determine which ones are illiquid;
- to arrange promotions for it so that people would buy it more willingly;
- conduct a demand analysis and in the future order only the most popular goods.
To achieve this, it is necessary to maintain a management balance and sales records using inventory control programs that prict demand for goods as accurately as possible.
3. Implement reports on a permanent basis
Set the frequency of filling out each report. Regularly analyze the information from the reports. Look for discrepancies in the data. This is necessary to find errors and inaccuracies in the accounting process. Also try to optimize the management accounting process.
