Management accounting is a branch of accounting that focuses on the revenues and expenses of a business, as well as asset usage. Someone engaged in management accounting notes unusual spikes and declines in revenues and expenses, and reports these variances to management. The intent of this analysis is to take action to improve the financial performance of a business.
Management accounting does not just result in variance reports. It can produce reports covering any aspect of a business. Examples of the types of information that may be reported include:
- Amount of cash on hand
- Capital budgeting analyses
- Inventory record accuracy percentage
- Loan covenant compliance
- Order backlog
- Percentage of overdue accounts receivable
- Project profitability
- Transfer pricing analyses
Management accounting results in reports that are intended for use within a business. Since this information is not viewed by outsiders, it does not have to comply with the reporting requirements of any accounting frameworks, such as generally accepted accounting principles. Instead, the accounting staff can generate reports in any format they want, in order to highlight actionable information.
The other main type of accounting is financial accounting, which focuses on reporting financial statements to outsiders, such as investors and lenders.
Management Accounting is also known as managerial accounting.