1.0 Introduction
Managerial accounting refers to accounting information developed for managers within a company or an organization (Garrison et al., 2003). To make it simple, managerial accounting could be understood as a process of identifying, accumulating, analyzing, measuring, preparing, and communicating information that facilitates managers to plan, control and manage business operations so as to attain organizational management goals. The information can be either financial or non-financial data. This is the phase of accounting in which information is provided to managers, mainly those who are in charge of making key business management decisions. Managerial accounting is very different from financial accounting. The latter is about providing financial information only to shareholders, investors, creditors, and others who are either not directly involved in the decision-making process of business management or outside an organization (Williams et al., 2005). Investors will deeply assess the financial accounting reports before purchasing stocks or making an investment in a company or an organization. However, managerial accounting is rather manager-oriented. Thus, the managerial accounting report should be concerned with what managers need in a dynamic business environment. In this report, the role of managerial accounting in business management will be comprehensively discussed in detail.
2.0 Managerial Accounting and Managers’ Responsibilities in Business Management
Managerial accounting is also known as the management accounting. According to the Institute of Management Accounting, managerial accounting is described as a profession that deeply associates with management decision-making, performance management, and strategic planning in business management (Needles & Crosson, 2002). It can provide useful information to guide managers’ decision-making process in key business operations and organizational management such as the formulation and implementation of a business strategy. Like the aforementioned, managerial accounting is rather manager-oriented. In other words, stakeholders outside the organization such as stockholders and investors will not be taken into account. Managers often have three major responsibilities as shown in figure 1 below.
Source Credit: Noreen, Brewer & Garrison, 2008
Fig 1: Managers’ Responsibilities
From the perspective of managerial accounting, planning is a process of communicating company goals to internal stakeholders including managers and employees. In figure 1, it can be observed that managers should be responsible for setting goals and objectives. Ultimately, the goals are often translated into monetary forms. For instance, through developing and selling a kind of product, the company should be able to receive a certain amount of sales revenue or profits. The planning is often achieved through a budgeting process. Budgets are the financial plans of a company or an organization. In order to attain organizational goals or objectives, managers need to allocate organizational resources and budgets accordingly to different divisions. Additionally, managers should also responsible for creating milestones and benchmarks of profits and cash flows. These are important indicators to reflect whether the planning is effective or not.
Directing, on the other hand, means that managers should oversee the day-to-day production and business operations. In fact, managers should motivate and supervise employees to move toward a common goal (Needles & Crosson, 2002). Managers traditionally act as transactional leaders, that is, to give simple instructions. Employees are managed based on a reward-and-punishment mechanism. However, in modern organizations, managers often work as transformational leaders. In other words, they should take the responsibility of guiding and motivating employees to work. However, in a tall organizational structure, in order to enhance the overall productivity and work efficiency, managers may design work breakdown packages to allocate task contents to respective group or individual employees. Through using a computerized managerial accounting system, all the assessments, and production operations can be directed and managed accordingly. Managers could modify and re-adjust organizational resources based on progress. For instance, managers can use product cost reports to adjust raw material usage. If the cost exceeds the budget, managers should reallocate raw materials and production inputs so that organizational or business goals can be achieved.
Last, at the controlling stage, managers must keep all production and business operations on track. It thus requires managers to closely evaluate results of operations at different benchmarks or milestones. In this process, managerial accounting can play an important role in assisting managers in evaluating production and business operations. For instance, managers can compare the actual budgeted costs and the planned costs. If the budgeted costs exceed the planned costs, it means that there are problems in the planning process. Generally speaking, controlling is about evaluating the results of operations against plans and making adjustments as needed.
Apart from planning, controlling and directing, managerial accounting can also help managers make key decisions with respect to organizational management. In fact, managers keep making critical decisions in planning, controlling and directing. Key decisions may include price-setting or product offerings, renovation of facilities, and operation openings or closings. Managerial accounting provides the information necessary to the management team. However, managers have to carefully evaluate the managerial accounting report before reaching a conclusion.
3.0 Conclusion
In conclusion, it is indisputable that managerial accounting plays a critical role in assisting the planning, controlling, directing and decision-making processes for managers. At the planning stage, managerial accounting can help managers to set realistic, achievable and measurable goals of production and business operations. Managerial accounting can provide information about budgets and organizational resources required for planning. At the directing stage, managerial accounting can be used to help managers rearrange or reschedule production activities. For example, if the production cost exceeds the budgets as stated in the planning process, managers should reallocate organizational resources and production inputs such as raw materials. At the controlling stage, managers can use the information provided by managerial accounting to evaluate whether the production or business management goals have been achieved according to the planning process. Last, managerial accounting plays a very important role in assisting managers to make key decisions. All in all, it should be noticed that managerial accounting is something different from financial accounting. It does not intend to serve the needs of people outside organizations such as shareholders. The target audiences are managers. With the assistance of managerial accounting, managers can make more accurate and justifiable decisions in organizational and business management.
Reference
Garrison, R. H., Noreen, E. W., Brewer, P. C., & Mardini, R. U. (2003). Managerial accounting. New York: McGraw-Hill/Irwin.
Needles, B. E., & Crosson, S. V. (2002). Managerial accounting. Houghton Mifflin Company.
Noreen, E. W., Brewer, P. C., & Garrison, R. H. (2008). Managerial accounting for managers. McGraw-Hill/Irwin,.
Williams, J. R., Haka, S. F., Bettner, M. S., & Carcello, J. V. (2005). Financial and managerial accounting. China Machine Press.