an assignment of managerial accounting

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Course info.

• Prof. Sugata Roychowdhury

Departments

• Sloan School of Management

As Taught In

Learning resource types, introduction to financial and managerial accounting, assignments.

The problem sets are to be done individually and are intended to help the student learn and practice the mechanics of the course material. Seven of the eight problem sets from the class are presented here.

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Managerial Accounting

(8 reviews)

Kurt Heisinger, Sierra College

Joe Hoyle, University of Richmond

Copyright Year: 2012

Last Update: 2023

ISBN 13: 9781453345290

Publisher: Saylor Foundation

Language: English

Formats Available

Conditions of use.

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Reviewed by Salina Siddique, Assistant Professor, Metropolitan State University of Denver on 5/22/19

The textbook covers the all the major concepts of managerial accounting. Although they are followed in a slightly different way and order than are pursued in the textbook I am currently using. I found the book easy to follow; however, a number of... read more

Comprehensiveness rating: 5 see less

The textbook covers the all the major concepts of managerial accounting. Although they are followed in a slightly different way and order than are pursued in the textbook I am currently using. I found the book easy to follow; however, a number of concepts could have been stretched further, such as, First-in-first-out method for Process Costing in Chapter 4, Lease or sell decision and replacing an old equipment with a new one etc. in Chapter 7 and Budgeting for merchandising organizations in Chapter 9 are some examples to mention. Inclusion of Table of Contents in the PDF version would have assisted with the reviewing of the textbook. A comprehensive list of learning objective would be useful at the beginning of each chapter. In addition, inclusion of an index/glossary would have been really helpful for quick search.

Content Accuracy rating: 5

The definitions are comprehensive. I have randomly checked a number of problems for mathematical accuracy and found no errors. However, I was wondering if the answers for the end of the chapter exercises are also available to the reviewers for establishing the accuracy.

Relevance/Longevity rating: 5

In terms of contents, the textbook covered all the major concepts of managerial accounting and hence, remain relevant for a considerable period of time. However, there are scopes for adding more examples and recent business phenomena and reference to current information technology.

Clarity rating: 5

The book is easy reading. I really like the introduction of each chapter, which starts with a business scenario in the form of dialogues that raises a particular management issue and then points out the necessity of learning the managerial accounting concepts covered in that chapter to solve such issue.

Consistency rating: 5

The text is consistent in terms of terminology and organization format.

Modularity rating: 5

Splitting each concepts into smaller chunks/sections supplemented by relevant questions and answers and examples would make the reading easy to the students.

Organization/Structure/Flow rating: 5

The topics in the text are presented in a logical and workable manner.

Interface rating: 4

Throughout the book, spaces are omitted between the words in the "Key equation" boxes in the PDF version, which may confuse the reader. Some of the tables are hazy and interferes with the reading.

Grammatical Errors rating: 5

I have not noticed any grammatical errors.

Cultural Relevance rating: 5

I have not perceived any culturally insensitive content or example in any way.

I greatly appreciate the effort of the authors in completing this book and making it available to students at no charge.

Reviewed by David Milton, Community Faculty, MnSCU on 10/25/18

Comprehensive introduction to the key concepts and methodologies of costing, including budgeting, cash flow forecasting, decision analysis, performance evaluation, and non financial measures. read more

Comprehensive introduction to the key concepts and methodologies of costing, including budgeting, cash flow forecasting, decision analysis, performance evaluation, and non financial measures.

Lots of examples and no mathematical errors were noted.

Good examples of how concepts are actually used, and the impact on financial statements.

Clarity rating: 4

Good definitions and and thought-provoking questions to strengthen understanding of the concepts.

Concepts build upon each other and are sequentially introduced.

Well tagged and compartmentalized.

Organization/Structure/Flow rating: 4

Fair organization. It would help if the answers to problems or exercises were on a different page or indexed in the back of the book.

Interface rating: 1

The tables in the pdf version are completely illegible and blurred, even when you zoom in. The online version is better.

None were obvious.

People (professionals) referenced in the examples were gender neutral with a representative balance.

I am not appreciating the muted green and blue shadings on all the tables and exercise problems. It makes it difficult to read. The fonts on some of the tables and exercise problems are entirely too small.

The introduction and explanation of the concepts are fairly well done and they make good use of challenges faced by contemporary companies.

Reviewed by Phebe Davis, Clinical Assistant Professor, Clemson University on 2/1/18

There is no glossary or index included, which would assist greatly with quick referencing of the information. However, the table of contents presents a comprehensive detailed overview of the book's chapters and related sections. The material... read more

Comprehensiveness rating: 4 see less

There is no glossary or index included, which would assist greatly with quick referencing of the information. However, the table of contents presents a comprehensive detailed overview of the book's chapters and related sections. The material coverage is as complete as the book I currently use, though presented in a slightly different order. This does not reduce the effectiveness of the information. I enjoyed seeing the review problems after each chapter section rather than all at the end of the chapter. I think students might be more likely to work the review problems in this manner as the questions appear more relevant when presented right after the applicable information. The key takeaways are also nice as they seem to reinforce the learning objectives. Overall, I think the book is effective for the purpose of an Introduction to Managerial Accounting.

Content Accuracy rating: 4

The information appears accurate. No errors noted.

Relevance/Longevity rating: 4

The material in this book appears relevant and consistent with other managerial textbooks. This type of information does not change frequently. The book should be easy to update should changes become necessary.

The information is clear with easy to follow examples and problems. The simple writing of this textbook helps reduce cognitive overload.

Consistency rating: 4

The book follows a logical pattern in presenting the topical information, though slightly different from how I currently teach managerial accounting. Terminology and layout is consistent throughout the textbook.

Modularity rating: 4

I appreciate the subheadings with the key takeaways and review problem after each chapter sub-section. The flow allows a simple way to ensure the learning objectives have been met. Each chapter is comprehensive enough to stand-alone.

Text is organized logically and has good information flow. Easy to follow and understand.

Interface rating: 3

I reviewed the online book and noticed spacing issues that were a bit distracting. I think the example sections should have a brighter background color scheme. The gray is boring and looks dull. Some of the more compressed pictures were not completely clear. Overall, the images are decent.

No grammatical errors noted.

Cultural Relevance rating: 4

The textbook is culturally neutral.

Given that the book covers the same material as my current managerial text but without the steep cost, I will strongly consider switching to this text. I appreciate the open availability of this book.

Reviewed by Jill Gillett, Faculty, Lane Community College on 6/20/17

The contents of this book are very comprehensive and comparable to other Managerial Accounting texts I have used in the past from major publishers. All of the major subjects I expected to find in an introductory managerial text were listed. There... read more

The contents of this book are very comprehensive and comparable to other Managerial Accounting texts I have used in the past from major publishers. All of the major subjects I expected to find in an introductory managerial text were listed. There were some subject areas that I felt could have been expanded, particularly with more introductory/context-building information, but overall, everything is included. The table of contents was organized in a clear, logical progression. The table of contents is missing from the pdf version of the text, but included in the online version; this is not a big draw back since the content could be covered "out of order" in a course, or students could be directed to the specific pages to read. One thing I would like to see is some expansion of the learning objectives. Objectives are included in the text at the beginning of a section, but they are all numbered "1" and are not summarized anywhere. Other reviewers have mentioned the lack of index/glossary.

I recalculated several of the chapter example problems and found no errors. There are no solutions provided for end-of-chapter exercises, so those could not be checked.

The content included in an introductory managerial accounting course does not change substantially annually. I believe this text will remain relevant for a while. Another reviewer mentioned that there may be a need to update some of the example companies after a while.

Overall, most of the text is very concise. Sentences are not overly long, and the language used is a good blend of technical vocabulary that the student should become accustomed to, and layperson terms. I think this is an advantage of this text - most students dislike having to "wade through" a lot of dense writing to get to the point of the chapter or section.

The text uses vocabulary consistently throughout. The structure of chapters, practice problems, examples, all follow a consistent pattern. See numbering of learning objectives comment above.

This is another advantage of this text - the concise presentation of most of the topics make it easy to subdivide and reorder.

This is largely addressed in the "comprehensiveness" section. Very clear, logical progression through the content.

The online version was much easier to navigate than the pdf. There were a lot of formatting issues in the pdf that made it distracting to my eye at times (uneven highlighting, indenting, spacing, some graphics were blurry). A lot of these issues could be alleviated by recompiling parts of the text into an LMS learning tool (such as a Moodle Book), or webpage.

While there are many spacing issues throughout (which could be attributed to formatting), I did not find any significant grammatical errors.

I did not find any part of the text culturally insensitive or offensive. It could expand on some of the illustrative examples to include multi-cultural products and/or company names.

I think this text is a good starting point for OER content for an introductory managerial accounting course. I would not be comfortable relying solely on this text for content - there is not enough contextualization nor enough visual aids for some of the material.

Reviewed by Christine Stinson, Associate Professor, Ferrum College on 2/8/17

The text "Managerial Accounting" provides a comprehensive and broad review of the major topics usually covered in an introductory Managerial Accounting course. There is no index. New terms are explained well in the text when they are first... read more

The text "Managerial Accounting" provides a comprehensive and broad review of the major topics usually covered in an introductory Managerial Accounting course. There is no index. New terms are explained well in the text when they are first introduced. There is no Table of Contents in the downloadable PDF but a Table of Contents is available at the Open Textbook Library (OTL) webpage where one would download the text. I do use this text in my teaching and I refer students to the OTL Table of Contents.

I have not discovered any errors in the text. I have used this text for several semesters.

The content of the book is excellent for an introductory course. I suspect most professors will bring in supplemental, current examples to compliment the generalized examples in the text. Nevertheless, the text's examples are sufficient and illustrative.

My students find the text accessible and useful. For me, that is the single best measure of any text's clarity.

Examples used in the chapter text lend themselves to being used a guides when students work on assigned problems from the end every chapter. I am quite satisfied with the text's internal consistency.

This text is very easily divided (or reordered) into modules to suit different teaching objectives. I teach several of the chapters "out of order" so that I bring in some concepts early in the semester.

The text topics are presented in a logical fashion (but, as noted above, one can easily reorder several of the chapters to suit individual teaching needs).

Interface rating: 5

The PDF file is easy to scroll through and clearly organized.

I found no grammatical errors in the text.

I found no parts of the text to be culturally insensitive.

I think it is wonderful that this text is available to students at no charge. I appreciate the generosity of the authors in making this possible.

Reviewed by Elizabeth Ahrens, Assistant Professor, Minnesota State University, Mankato on 8/21/16

Differences between managerial and financial accounting seems to be abbreviated in chapter 1. Trends such as lean operations, social responsibility, sustainability or global marketplace not included. Overall very complete. read more

Differences between managerial and financial accounting seems to be abbreviated in chapter 1. Trends such as lean operations, social responsibility, sustainability or global marketplace not included. Overall very complete.

No biases detected.

Sections of book were clearly identified and coverage seemed to flow consistently.

Good use of real world examples.

Terminology was used consistently throughout the textbook.

Some sections/chapters seemed long. Could possibly be condensed but could be easily adapted to content coverage in the course.

Good job on organization of book.

No issues with the book's interface. Charts were clear and readable.

Grammatical Errors rating: 3

Pg. 12 - First paragraph needs space between words (This is the planning function). Pg 15 -Managerial Accountant paragraph needs space after term cost accountant. Pg. 28 - spacing in answer is incorrect, I noticed spacing issues throughout the textbook.

I didn't find any culturally insensitive or offensive material.

The textbook would be more than adequate for a lower level course in managerial accounting. Some content that could have been included is information about the global marketplace and lean accounting techniques.

Reviewed by Craig Moore, Assistant Professor, University of Wisconsin-Stout on 1/7/16

The text provides a comprehensive course in Managerial Accounting. All Managerial Accounting topics that would typically be covered in an Accounting II course are also covered. The text does not cover the Financial Accounting topics that would... read more

The text provides a comprehensive course in Managerial Accounting. All Managerial Accounting topics that would typically be covered in an Accounting II course are also covered. The text does not cover the Financial Accounting topics that would typically be covered in an Accounting II course---but that is not an objective of the book. The text could stand alone as the sole text for a course in pure Managerial Accounting. Alternatively, the book could serve to cover the Managerial Accounting topics in a typical Accounting II course. The text lacks an index or glossary. While these would be desirable, this is not a huge shortcoming for this particular subject matter. The lack of a Table of Contents or chapter listing within the PDF of the book itself is an issue.

Coverage of the content appeared to be accurate, unbiased, and consistent with current Managerial Accounting principles. While I did not review every example or problem, I noted no errors.

The material covered is completely relevant to current Managerial Accounting thinking. These concepts should not change dramatically, so in terms of concepts the text should remain relevant. Some of the case studies may not age as well and could eventually date the book, but this is a hazard in any business text. Some of the discussions of information technology solutions might not remain relevant either.

This is a strong point of the book. I really appreciated the less formal, less dense style. Managerial Accounting students can be discouraged by the tendency of their textbook to be overly laden with jargon and numeric calculations. While the book does provide the required terminology and numeric examples, it is much more readable than a typical textbook in the field.

The text was consistent in its approach both stylistically and conceptually.

The text’s divisibility was another strong point. Using some previously presented information is inevitable in a Managerial Accounting class; however, many of the individual chapters could be presented on a stand-alone basis with some instructor introduction. Using individual chapters in a modular fashion would also be particularly attractive if the text was being used as supplemental text for a typical Accounting II course. Specific chapters relating to Managerial topics could be used as supplementary material in an Accounting II course.

I noted no issues with organization or structure, and the ordering of topics appears reasonable. The author's sequence is not identical to what I am used to teaching, but it appears logical, workable and perhaps superior. This also speaks to the book’s modularity, as it is possible to present these topics in a different order if needed.

The lack of a Table of Contents hinders navigation. Some of the smaller graphics/charts were hard to read on my display. The larger graphics had a fuzziness to them compared to the standard text. I observed some unusual omitted spaces, but that was possibly a function of my specific PDF viewer. Generally the book can be navigated as easily any PDF.

Grammatical Errors rating: 4

I noted no egregious errors.

The text is as successful at being culturally relevant as a Managerial Accounting text could be. The subject matter does not lend itself to promoting diversity nor to generating content that is offensive or controversial.

A student could encounter this book as the sole text in a Managerial Accounting course, as a text that covers Managerial Accounting topics in an Accounting II class, or as a supplementary text using selected chapters to cover special topics. In all of these cases the student would have a quality educational resource.

Reviewed by Karen Bangs, Professor, California Polytechnic State University on 7/15/14

The book covers all I need and more. In fact I will probably use Ch 8 to supplement my Engineering Economics class. This text covers types of costs, contribution margin, product costing (ABC, process and job), absorption costing, standard costs,... read more

The book covers all I need and more. In fact I will probably use Ch 8 to supplement my Engineering Economics class. This text covers types of costs, contribution margin, product costing (ABC, process and job), absorption costing, standard costs, variance analysis, budgeting (capital and operating), Financial statement analysis (all 3) and ratio analysis, ethics and sensitivity anlaysis sprinkled throughout. There is no index/glossary or even a lead in listing of chapters.. that would be a helpful add. I had the chapter titles listed in the "about" doc so could tell where I was going.

Obviously I didn't look at every example or problem but the ones I did were correct. On page 478 the formula should be Fn*(1+r)^-n.... it currently reads Fn*(1+r)*n

Great... excellent organization in my opinion. The only "relevance" issue might be the companies used as examples are great for today, might not be in 10 years. But for the most part they are very well known (I think with college age students as well) so most likely helps peak interest.

Great.. I love the introduction with the Q&A from an actual business scenario and how answering those questions are what drives the chapter/section. The break down of topics is very readable/digestable in small doses.

Yes... reference comments in "clarity" section. I also appreciated the reference to earlier sections, that helps to intregrate the material for the reader (in my opinion).

Yes... great "chunks" of information and each chunk supplemented with problems and relevance to well known and interesting companies.

Yes... see "modularity". I am happy with the organization of chapters, I could see some re-arrangement. But I think that's a matter of personal preference not impacting the learning experience for the student.

Some of the images are blurry (alot of the tables/forms with the green background), most are readable but a few are not. The margin/indentations could use some organization. I didn't see any spelling errors but sometimes words are scrunched together (no space where there should be some).

None that I noticed.

It would be a little difficult for this topic to be culturally offensive (I think). The choice of companies for examples were very neutral (in my opinion) and easily and non-offensively cut across race/gender/ethnicity/etc... The choice of companies for examples seem very relevent in help increase interest in the subject matter.

I think it's great and will plan to incorporate it next time I teach my Industrial Cost & Controls (aka Managerial Finance) class. At this review I prefer this text to the one I've been using.

Table of Contents

• Chapter 1: What Is Managerial Accounting?
• Chapter 2: How Is Job Costing Used to Track Production Costs?
• Chapter 3: How Does an Organization Use Activity-Based Costing to Allocate Overhead Costs?
• Chapter 4: How Is Process Costing Used to Track Production Costs?
• Chapter 5: How Do Organizations Identify Cost Behavior Patterns?
• Chapter 6: How Is Cost-Volume-Profit Analysis Used for Decision Making?
• Chapter 7: How Are Relevant Revenues and Costs Used to Make Decisions?
• Chapter 8: How Is Capital Budgeting Used to Make Decisions?
• Chapter 9: How Are Operating Budgets Created?
• Chapter 10: How Do Managers Evaluate Performance Using Cost Variance Analysis?
• Chapter 11: How Do Managers Evaluate Performance in Decentralized Organizations?
• Chapter 12: How Is the Statement of Cash Flows Prepared and Used?
• Chapter 13: How Do Managers Use Financial and Nonfinancial Performance Measures?

Ancillary Material

About the book.

Kurt Heisinger and Joe Ben Hoyle believe that students want to learn accounting in the most efficient way possible, balancing coursework with personal schedules. They tend to focus on their studies in short intense segments between jobs, classes, and family commitments. Meanwhile, the accounting industry has endured dramatic shifts since the collapse of Enron and WorldCom, causing a renewed focus on ethical behavior in accounting. This dynamic author team designed Managerial Accounting to work within the confines of today's students' lives while delivering a modern look at managerial accounting.

Managerial Accounting was written around three major themes: Ready, Reinforcement and Relevance. This book is aimed squarely at the new learning styles evident with today's students and addresses accounting industry changes as well.

Ready . Your students want to be as efficient as possible in their learning. This book adopts a concise, jargon-free, and easy-to-understand approach that is ready with concise sections and concepts when the student is ready to study in a format the student wants. Key concepts are provided in short segments with bullet points and step-by-step instructions to simplify concepts. This thoughtful, step-wise approach will help your students avoid distractions and focuses attention on the big picture.

Reinforcement. Managerial Accounting boasts “Review Problems” at the end of each major section or learning objective which offer practical opportunities for students to apply what they have learned. These “Review Problems” allow students to immediately reinforce what they have learned and are provided within the body of the chapter along with the solutions.

Relevance. Why is managerial accounting important? Since all students perform better when they can answer the “why” question, meaningful references to companies throughout the chapters help students tie the concepts presented in each chapter to real organizations. In addition, realistic managerial scenarios present an issue that must be addressed by the management accountant. These will pique your students' interest and were designed to show how issues can be resolved using the concepts presented in the chapter. Finally, “Business in Action” features in Managerial Accounting link managerial decision-making to real business decisions to help your students complete the learning cycle from concept, to accounting decision, to real-world application.

Managerial Accounting by Heisinger and Hoyle also contains a handful of other pedagogical aids to compliment your lectures and help your students come to class prepared. From a focus on decision-making, to end of chapter materials that can only be characterized as very deep and very wide, to ethics coverage, group projects and spreadsheet applications—these features allow you to teach the course you want to teach and assign the materials you like to assign.

About the Contributors

Kurt Heisinger (CMA, CPA, MBA) teaches financial and managerial accounting full time and holds a tenured position at Sierra College. He recently received the 2011–12 Faculty of the Year award, which was voted on and presented by the Associated Students of Sierra College. Kurt has also taught accounting classes at the University of California—Davis and American River College.

Kurt began his career in public accounting with Ernst & Young and continued as a manager of a large local accounting firm in California. He received his MBA at the University of California—Davis and is currently a certified management accountant (CMA) and certified public accountant (CPA). The knowledge Kurt gained from his seven years in industry and more than 15 years in education has enabled him to write a clear and concise book filled with real world examples.

Joe Hoyle is an associate professor of accounting at the Robins School of Business at the University of Richmond. In 2006, he was named by BusinessWeek as one of 26 favorite undergraduate business professors in the United States. In 2007, he was selected as the Virginia Professor of the Year by the Carnegie Foundation for the Advancement of Teaching and the Council for the Advancement and Support of Education. In 2009, he was judged to be one of the 100 most influential members of the accounting profession by Accounting Today.

Joe has two market-leading textbooks published with McGraw-Hill—Advanced Accounting (eleventh edition, 2012) and Essentials of Advanced Accounting (fifth edition, 2012), both coauthored with Tom Schaefer of the University of Notre Dame and Tim Doupnik of the University of South Carolina.

At the Robins School of Business, Joe teaches fundamentals of financial accounting, intermediate financial accounting I, intermediate financial accounting II, and advanced financial accounting. He earned his BA degree in accounting from Duke University and his MA degree in business and economics, with a minor in education, from Appalachian State University. He has written numerous articles and continues to make many presentations around the country on teaching excellence.

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Managerial Accounting: Everything You Need To Know

So you want to get into managerial accounting. It’s easy to see why: accountants in managerial roles tend to enjoy better salaries and higher rates of job satisfaction than junior and staff accountants.

Even a lower-level position in management can be a stepping stone to your dream role, from senior accountant all the way up to CFO .

Throughout my career, I’ve watched accountants work hard to land managerial accounting roles that have skyrocketed their careers to new heights.

If you’re interested in managerial accounting, you’re in the right place. Today, I’ll break down all the basics: core concepts, job opportunities, and frequently asked questions so you’re prepared to land the job you want.

Keep reading to learn more.

What Is Managerial Accounting?

The scope of managerial accounting, learning managerial accounting with the cma credential, managerial accounting methods, jobs in managerial accounting, managerial accounting faqs, become an industry leader with cma exam academy.

Let’s start with a definition: managerial accounting is a position in which skilled accountants use financial data to support a business with decision-making. The objective of these roles is to help direct a company toward its goals.

The professionals in these positions play a pivotal role in a business’s financial decision-making and strategic planning. They are critical members of a team who are highly valued by upper management.

This means landing a managerial accounting position will give you an excellent opportunity to impress your team while building valuable skills and relationships.

The definition sounds simple enough. But there’s a bit more to it than that.

Managerial accounting is different from financial accounting .

Unlike financial accounting, managerial accountants don’t always adhere strictly to financial accounting standards.

Because the goal of professionals in these roles is to support the management team, ad-hoc reports can be presented in a way customized to suit the unique needs of the business. They don’t need to adhere to GAAP since the ad-hoc reports are informal and for internal use only. However, all financial statements like the Profit & Loss, Balance Sheet, etc must follow GAAP.

Some key ways managerial accountants leverage data and financial information for their companies:

• Identifying trends, opportunities, and risks
• Measuring risk, reward, and ROI
• Analyzing current and historical information
• Interpreting data to draw conclusions about future possibilities
• Presenting findings, recommendations, and conclusions to upper management

And some of the direct applications for data and conclusions:

• Product costing
• Projecting and forecasting
• Strategic planning
• Financial analysis

The ultimate goal of managerial accounting is to support intelligent decision-making. This means a managerial accounting team needs to process a lot of information from multiple levels of a business and condense it into clear, actionable recommendations for the leadership team.

If you want to take the next step into the world of managerial accounting, there are a few ways you could start. My personal favorite is taking the path of a Certified Management Accountant .

The CMA is a highly-respected and revered certification for accounting professionals at any stage of their career. It prepares you for a career in accounting leadership by demonstrating your competencies in the key skills hiring managers look for in candidates.

The results speak for themselves: CMAs enjoy an average salary that is as much as 58% higher than their noncertified peers . They have high rates of job satisfaction, access to better job opportunities, and a competitive edge in an increasingly crowded job market.

Some management accountant methods and concepts you could learn include:

• Financial data analysis
• Cost management and budgeting
• Decision-making and decision analysis
• Investment decisions
• Risk management
• Forecasting and strategic planning
• Data analytics
• And much more

CMAs are also known for their upstanding commitment to professional ethics. Part 2 of the CMA exam covers professional ethics, and all CMAs must complete annual ethics training as a part of their continuing professional education, or CPE requirements.

Exam Secrets Cheat Sheet

Now let’s get into the nitty-gritty.

Here are some ways in which managerial accounting is used.

Margin Analysis

One of the most important ways businesses use management accounting is for margin analysis.

Weighing the benefits and costs associated with certain decisions is critical for ensuring a company remains profitable, so managerial accounting teams ensure the company’s leaders understand the risk during the decision-making process.

This way, the team avoids costly mistakes and improves the company’s ability to achieve its objectives.

Constraint Analysis

Managerial accounting teams also use data to present recommendations concerning constraint analysis.

A company’s control over bottlenecks has a direct correlation to profitability, so this is a big one. Understanding the cause and effects of past bottlenecks can help with policy design and strategic planning.

Managerial accountants can use constraint analysis to reduce operational inefficiencies by leveraging historical data to streamline processes.

Capital Budgeting

Managerial accounting also supports capital budgeting.

Since managerial accounting is different than financial accounting, this goes beyond just revenues and expenses. Using their analytical skills, managerial accounting teams will analyze cash inflows and outflows, including non-expense items, to get a bigger picture of a company’s financial pulse.

Inventory Valuation and Product Costing

During each reporting period, a company needs to calculate the value of and costs associated with its inventory. Management accounting teams present information to support this process.

Costs could include labor, overhead, fees, duties, and materials. Understanding the value of inventory is important for understanding the cost of goods sold. It’s also necessary for the loan application process, as inventory is sometimes used as collateral.

Trend Analysis and Forecasting

Managerial accountants are the closest a company can get to hiring a fortune teller.

These professionals are skilled in forecasting, which involves gathering and analyzing current and historical data to draw conclusions about potential future outcomes.

This process is valuable to employers because it can predict key outcomes for certain decisions including ROI and potential risks.

There are plenty of different roles to choose from when it comes to managerial accounting. Regardless of where you are in your career, you can find an option that is within your reach.

Here are some to choose from:

• Cost accountants and budget analysts: two great options for those early in their careers. Cost accountants assess budgets and look for opportunities to save their companies money. Budget analysts use data to create budgets that improve the profitability of their organizations.
• Financial analysts: another ideal early-career option. These professionals are skilled at forecasting. They use data to analyze the potential outcomes of certain decisions and then present recommendations to the C-Suite.
• Accounting manager: when you’re ready to take your technical skills to the next level, it’s time to seek a leadership position . A position like accounting manager is a great place to start. These professionals oversee operations at their company and manage reporting and compliance.
• Chief cost accountant and budget directors: as you grow in your career, you’ll want to seek opportunities with more responsibility. Chief cost accountants manage cost accountants and direct the team toward its goals. Similarly, budget directors oversee the process of planning and creating budgets.
• Corporate controller : This senior management position is a dream job for many. It involves a lot of responsibility, as corporate controllers manage all aspects of a company’s financial policies as well as managing the accounting team.
• VP of finance : Similar to controllers, VPs of finance are heavy hitters in their organizations. They are skilled strategists and leaders who guide entire accounting departments toward the company’s goals.
• Chief Financial Officer (CFO): Becoming a CFO means joining the C-Suite with the uppermost leaders in an organization. They are responsible for all aspects of financial decision-making and they work directly with the C-Suite on major decisions like investments, policy making, and acquisitions.

There are a few more things you should know about managerial accounting. Let’s explore.

What Types of Information Does Managerial Accounting Provide

Managerial accounting teams provide reports with recommendations that are critical in a business’s decision-making process.

This includes:

• Financial reports
• Financial metrics
• Revenue figures
• Sales reports
• Costs and expenses
• Cost controls

Using this information, accounting professionals create budgets, policies, strategies, plans, and recommendations that they then present to the executive leadership teams at their organizations.

What Are the Three Main Functions of Managerial Accounting?

The three main functions of managerial accounting are analysis, forecasting, and reporting. But truthfully, these teams serve many purposes for their companies.

The main function of any good managerial accounting team is to support its company with accurate, relevant, and timely information. This information is important for ensuring decision-makers know everything they need to know to direct the company toward its goals.

What Is the Main Focus of Managerial Accounting?

The primary focus of managerial accounting is ensuring that a company has all the information required to make sound decisions that limit risk and maximize profits.

Using budgets, forecasts, and strategic plans, these professionals paint a vivid picture of the past, present, and potential future of a company so executive leadership can guide the company toward sustainable growth and success.

Does GAAP Apply in Managerial Accounting?

GAAP — or Generally Accepted Accounting Principals — are a set of standards that govern corporate accounting.

Managerial accounting does not have to adhere to GAAP so long as the ad-hoc reports are for internal use only, and not official. However, all financial statements like the Profit & Loss, Balance Sheet, etc must follow GAAP.

This means managerial accounting reports can be used within a company to inform decisions and strategies, but they cannot be submitted as official government documents.

The path to becoming a managerial accountant isn’t easy, but it’s well worth the effort.

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• Online Degree Information

What Is Managerial Accounting?

Contact a student success coach to learn more about the Boise State MBA program’s approach to managerial accounting and how it can benefit you in your career.

Executives in every industry must learn to speak the language of business. Marketing, economics, finance, organizational behavior and project management are all core components of any MBA curriculum for this very reason. Unless business leaders are familiar with the concepts and terminologies associated with these areas of operation, they cannot achieve the level of perspective necessary for continued growth.

Accounting plays a key role, both in day-to-day business operations and with respect to long-term business strategy. More than just a tabulation of debits and credits, or a set of mathematical formulae useful for generating budgets, accounting equips the executive with a set of quantitative analytical tools that can be applied to multiple tasks. Nowhere is this truer than in the realm of managerial accounting.

Definition of Managerial Accounting

Managerial accounting is the practice of using accounting information — from revenues to production inputs and outputs affecting the supply chain — internally, in support of organization-wide efficiency and for tracking the organization’s progress toward attaining its stated goals.

Managerial accounting differs from financial accounting. Financial accountants report profits and losses, issue earnings projections, and otherwise produce facts and figures that third parties (e.g., stockholders) are likely to encounter in an annual report. Financial accountants also create data for review by oversight agencies, such as the Securities and Exchange Commission (SEC) and the Internal Revenue Service (IRS).

What Is the Value Of Managerial Accounting?

While both managerial accountants and financial accountants may occasionally make use of the same data, the scope of managerial accounting is much wider. Managerial accounting supports a broad understanding of cost versus benefit. Managers faced with specific decisions may request information on any number of business operations to chart the best possible course of action.

Further, whatever their area of expertise, all managers are responsible for allocating and measuring the performance of their resources. These resources may be financial (e.g., investments), human (e.g., team members), or even technological (e.g., a customer database). To be fluent in accounting, all managers should be able to read a balance sheet, navigate line items in a budget, evaluate return on investment (ROI), and comprehend the host of underlying (and sometimes hidden) circumstances that affect how they manage the resources under their control. Managerial accounting information is, therefore, actionable data.

Managerial Accounting in Practice

Variance analysis remains one of most powerful and versatile of all managerial accounting tools. Because budgets constitute expressions of expectations, executives have a means of measuring just how reasonable those expectations are and how they relate to actual outcomes. Whether or not these outcomes are exceeded or unmet, variance analysis seeks to uncover the factors responsible for the difference between estimates and actual amounts (expenditures, earnings, etc.).

Further, variance analysis seeks to determine how particular factors interact in throwing off projections. Most importantly, it seeks to identify what steps may be taken to better predict future outcomes and to mitigate against unfavorable results. A variance analysis can also reveal mistaken assumptions that require dispelling, as well as create a context in which managers can begin asking even more important questions related to efficiency, cost savings and business growth.

Managerial accounting practices also play a vital role in corporate governance. Charles Tilley, former CEO of the Chartered Institute of Management Accountants (CIMA), observed in 2014 that “over the last few years, we’ve all seen how globalization and the breakneck pace of technological progress are making change harder to predict and organizations more vulnerable. Management accountants have the ability and judgment to make objective ethical decisions that consider the public interest.” Managerial accounting is thus instrumental to good customer relations and, by extension, strong reputation management. Even a handful of negative comments scattered across the internet can cost companies millions of dollars in annual sales.

Students who choose the online MBA program at Boise State University have the opportunity to learn and apply the principles of managerial accounting by enrolling in BUSMBA 525 . This 7-week course introduces students to an array of cost-based accounting concepts and practices. The readings and assignments designed for this course help MBA candidates meet the challenges involved in using best managerial accounting practices. Like all of Boise State’s online MBA courses, Managerial Accounting (BUSMBA 525) provides students with opportunities to enhance their interpersonal skills with collaboration with classmates to solve problems common to the profession.

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What is managerial accounting.

Managerial accounting is the process of identifying, analyzing, interpreting and communicating information to managers to help managers make decisions within a company and to help achieve business goals.

The data collected encompasses all fields of accounting that informs the management of business operations relating to the costs of products or services purchased by the company. Managerial accountants use budgets to quantify the business’ plan of operations.

Performance reports are used to note the deviation of actual results compared what was budgeted.

This article will also discuss:

How Managerial Accounting Helps in Decision Making?

5 types of managerial accounting that add value to your business, what are managerial accounting reports.

NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.

Managerial accounting is very effective in highly competitive and fast-paced business environments where quick decisions need to be made. These decisions might have to do with a sales tactic, budgeting or cash flow management . Managerial accounting will use operational data to make sense of the situation quickly.

The goal is to use the budget to help make short-term operational decisions that will help increase the company’s operational efficiency.

Let’s say an internet company subscribes to cloud computing services. Monthly prices to rent out space in the cloud have been increased. The internet company’s managers can use budgets to see if the price increases are costing too much and decide to reduce cost and increase operational efficiencies.

The company budgets $100 a week for access to the cloud services and the actual expenditure for the week is $200. Managers know there is a 100 percent variance between budgets and actual costs. A managerial accountant would advise to increase their expectations on prices in their budget or move to another provider to meet their budget cost.

Management accounting presents your financial information in a way that will be useful for making operational decisions about your company. Keeping your financial records up to date will help you perform the following managerial accounting tasks that will add value to your company.

MARGIN ANALYSIS

Managerial accounting analyzes the incremental benefit of increased production – this is called margin analysis. This flows into the breakeven analysis, which involves calculating the contribution margin on the sales mix to determine the unit volume at which the business’ gross sales equal total expenditures. A managerial accountant will use this information to determine the price point for products and services.

2) CONSTRAINT ANALYSIS

Constraint analysis indicates the limitations within a sales process or production line. Managerial accountants find out where the constraints occur and calculate the impact on cash flow, profit and revenue .

3) CAPITAL BUDGETING

Managerial accountants help a business decide when, where and how much money to spend based on financial data. Using standard capital budgeting metrics, such as net present value and internal rate of return, to help decision makers decide whether to embark on costly projects or purchases.

The process involves reviewing proposals, deciding if there is a demand for products or services, and finding the appropriate way to pay for the purchase. It also outlines payback periods, so management is able to anticipate future costs and benefits.

4) TREND ANALYSIS/FORECASTING

Reviewing the trendline for certain costs and investigating unusual variances or deviations is an important part of managerial accounting. Decisions are made by using previous information like historical pricing, sales volumes, geographical location, customer trends and financial data to calculate and project future financial situations.

5) PRODUCT COSTING/VALUATION

Determining the actual costs of products and services is another element of managerial accounting. Overhead charges are calculated and allocated to come up with the actual cost related to the production of a product. These overhead expenses may include the number of goods produced or other drivers related to the production, such as the square foot of the facility. Along with overhead costs , managerial accountants use direct costs to assess the cost of goods sold and inventory that may be in different stages of production.

Managerial accounting reports use budget reports to help guide managers to offer better employee incentives, cut costs and renegotiate terms with Managerial accounting reports use budget reports to help guide managers to offer better employee incentives, cut costs and renegotiate terms with vendors and suppliers.and suppliers.

Here are a few types of managerial reports.

ACCOUNT RECEIVABLE AGING REPORTS

Does your business rely heavily on extending credit ? Then an account receivable aging report is vital to your operations. This report breaks down the remaining balances of your clients into specific time periods allows managers to identify the debtors and identify issues in the company collection process.

If your company has many debtors, you may need to a complete rehaul to tighten up credit policies as cash flow is critical to the operations of any business. A company should always know who owes them what.

PERFORMANCE REPORTS

The performance of a whole company, each department and each employee are considered at the end of each term in performance reports. These reports are used to make important decisions about the company’s future. Under-performers are sometimes let go and individuals who achieve or over-achieve their goals are rewarded for their commitment to the business. Performance reports can show flaws in workflow setups if let’s say for example a whole department is somehow not performing to a certain capacity. A performance report is an important tool to stay on track a company’s mission.

Cost Managerial Accounting Reports

Managerial accounting determines the costs of articles that are manufactured. All raw material costs, overhead, labor and any added costs are considered, and those totals are divided by the amounts of products produced.

A cost report offers a summary of this information. This report offers showcases the cost prices of items versus their selling prices for managers. Using these reports, profit margins are estimated and monitored.

Better optimization of resources can be achieved by having this understanding of all expenses, including inventory waste, hourly labor costs, and overhead costs.

OTHER MANAGERIAL ACCOUNTING REPORTS

Other managerial reports that are vital to every business include order information reports, project reports, competitor analysis and many other similar reports.

These reports are either created internally or outsourced through professionals depending upon your company’s capability to handle reporting requirements. To make the most informed decision companies and managers must have access to authentic data and credible managerial accounting reports.

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Managerial Accounting

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The accounting industry has endured dramatic shifts since the collapse of Enron and WorldCom, causing a renewed focus on ethical behavior in accounting. This dynamic author team designed Managerial Accounting to work within the confines of today's students' lives while delivering a modern look at managerial accounting. Managerial Accounting was written around three major themes: Ready, Reinforcement and Relevance. This book is aimed squarely at the new learning styles evident with today's students and addresses accounting industry changes as well.

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What is Managerial Accounting? Definition, Functions, Examples

Accounting is an important function that every business, irrespective of its size, should pay maximum attention to. Accountants and bookkeepers are responsible for compiling, measuring, and analyzing accounting records in the form of financial reports or statements for companies.

However, it can be difficult for internal managers in a company to interpret these accounting records compiled by accountants and bookkeepers because they are mostly aimed at external parties.

Managerial accounting involves the compiling, analyzing, and interpretation of financial records for managers. It helps managers make informed internal decisions for the benefit of the company.

In this article, you will learn the meaning of managerial accounting, how managerial accounting works, who are the users of managerial accounting information, managerial accounting vs financial accounting, types of managerial accounting, techniques in managerial accounting, and managerial accounting reports to know.

Let’s get started.

What is Managerial Accounting?

Managerial accounting is a branch of accounting that deals with the compilation of financial records for internal decision-making. It is also known as cost accounting or management accounting, and managerial accounting.

Another definition of managerial accounting is that it is the process of compiling, measuring, analyzing, and interpreting accounting records for managers to make informed business decisions in the pursuit of business goals.

For managerial accountants, the analysis of various accounting operations and metrics is aimed at extracting useful information for the company's management.

By analyzing the cost of each product, activity, and facility, among others, detailed and useful information is provided to the management of a company. These analyses are based on the budget of the company and business decisions are aimed at productively exploiting this.

Managerial accounting is a very important accounting type for businesses in highly competitive business environments. It helps with operational data to quickly and easily make more accurate business decisions.

Overall, the goal of managerial accounting is to compare financial records with a company's budget and provide beneficial information for better internal decision-making and productivity.

How Managerial Accounting Works

Managerial accounting involves all areas of accounting aimed at providing useful information for better management of business operations. Accountants in this department make use of the cost of products and services, the sales revenue, as well as the budget of the company to generate useful information.

The area of managerial accounting that attracts the most focus is cost accounting. This includes financial records and accounts about the total cost of goods and services purchased by a company.

To give a good idea of how it works, here is an example.

If a company has a budget of $100 per week for purchasing a good and the weekly price of this good increases to $150, managerial accounting helps to provide quick information to go about this change.

The analysis would consider the cost of goods sold (COGS) and the revenue generated from sales and determine if the business can fund this price increase or if a cheaper alternative is better.

Without prior managerial accounting, the business may decide to go for a cheaper product which may affect the quality of products and, ultimately, the profitability of sales.

Managerial accounting only exists to help make these decisions much easier, accurate, and effective in relation to a company's budget and achieving business objectives.

Who are the Users of Managerial Accounting Information

Managerial accounting information is used by internal administrators of a business. These internal administrators include the general management of a company and the owner of a business to make better financial and operational decisions.

The management of a business makes use of the information to evaluate and analyze a company's performance and financial position. It also uses the information to make better financial decisions and prioritize business operations around fulfilling financial goals in terms of profitability and cash flow.

Owners of businesses invest capital in businesses and need accurate information to be able to access their level of profit or loss from their business operations. This allows them to know if business operations, as well as capital investments, need to be expanded or contracted.

Managerial accounting gives business owners appropriate information to make these important financial decisions.

For small or sole proprietary businesses, the owner of a business is usually part of the management. Nonetheless, information from managerial accounting is used by the internal administrators of a company that make the decisions.

Managerial accountants compile and analyze financial data and provide information for business administrators to use.

Managerial Accounting vs Financial Accounting

The main difference between managerial accounting and financial accounting is the users of the information generated.

Managerial accounting is intended for internal administrators of a business to make internal decisions.

Financial accounting, on the other hand, deals with financial records intended for external actors such as investors, creditors, or lenders. It aims to provide external parties with information about the financial health of a business

Apart from this, however, there are other grounds on which these two accounting types differ.

1. Presence of External Regulation

Financial accounting activities are regulated by external standards as opposed to the more flexible requirements placed on managerial accounting procedures.

External parties need to be protected from the incompetence of a firm as they are the main users of financial accounting information. Because of this, financial accounting procedures are required to fulfill certain standards set by regulatory bodies.

The Generally Accepted Accounting Principles (GAAP) set by the Securities Exchange Commission (SEC) and standards set by the Financial Accounting Standards Board( FASB) are the primary regulatory standards in the US.

Publicly held companies are required to complete all their financial accounts following GAAP standards to keep their public-traded status. Companies that also wish to get loans, entice investors, or fulfill debt covenants set by financial institutions also conform with the GAAP.

On the other hand, managerial accounting does not have to fulfill any form of general standards. Managerial accounting only has to fulfill internal standards and principles set to achieve business goals. Any set standard can be easily modified to meet the changing business environment and needs.

Standards relating to managerial accounting vary, not just from company to company but, even between departments within a company. Financial reports and data can be presented in any way, as long as the individuals intending to use them are satisfied and can use them to make decisions.

2. Futuristic Outlook

Managerial accounting compiles, analyses, and interprets data with the main aim of rendering decisions affecting the future of a company easier to make. The final interpretations presented to internal administrators offer clues to making accurate decisions that affect the future operations of a business.

Financial accounting, on the other hand, only aims to present information about the historical financial data of a company. It aims at presenting external stakeholders with information about the financial health of the company.

Financial accounting may seem to enable external stakeholders like investors and lenders to make more informed decisions but this is not the main aim for the company keeping accounts. A company may not need the help of external institutions and still engage in financial accounting activities.

Financial accounting is only aimed at keeping historical data about all the financial transactions a company has engaged in. It is responsible for producing financial statements for external use such as balance sheets and income statements .

3. Time for Generating Reports

The time when reports and statements are generated for use is different between managerial and financial accounting. While reports are only presented at the end of an accounting period with financial accounting, multiple operational reports are generated for managerial accounting.

An accounting period is usually set to be year-long and this could either be a regular calendar year or a fiscal year starting from a particular day. Financial accounting statements are usually run and presented at the end of this period.

Managerial accounting statements, on the other hand, are presented at any period of time that is convenient for the productive management of a business. They may be fixed over a period of time but this fixed period is entirely flexible and comes at different times and forms within a month.

With these, it is apparent that financial accounting statements are not useful for properly managing a business. Unlike managerial accounting statements that are compiled as at when needed, financial accounting statements are compiled too late for use.

Types of Managerial Accounting

Managerial accounting activities and operations come in different forms. Some of the most popular types of managerial accounting used by companies include product costing, marginal costing, cash flow analysis, inventory turnover analysis, constraint analysis, financial leverage analysis, and accounts receivable management.

1. Product Costing

Product costing is the process of determining the total cost involved in the production of goods and services. It is the process of tracking, recording, and studying every expense involved in the purchase and sale of goods and services including the cost of goods manufactured (COGM) .

These expenses span from the cost of raw materials to labor costs to factory overheads and the cost of delivering goods to buyers or consumers.

Costs are broken down into four categories; fixed cost, variable cost, direct cost, and indirect cost. Product costing aims at identifying and distinguishing expenses into these categories for better understanding and analysis.

Managerial accountants exercise product costing in several ways. Overhead charges are determined for each product by dividing the whole expense by the number of goods or other factors like storage space.

Proper product costing allows a company to accurately estimate the cost and value of products in different stages of production. Product costing helps managers to implement pricing strategies that are beneficial to the company.

2. Marginal Costing

Marginal Costing is another type of managerial accounting that deals with the cost of goods. It involves determining the impact of adding one additional unit of a product to the purchase or production order. This impact is then measured in relation to the overall cost of production.

Making use of marginal costing is good for short-term business decisions. It helps to measure the amount of contribution a product has to the overall cost and profit of a company.

For managerial accounting, marginal costing works closely with break-even analysis. Additional products are added to determine the unit volume that makes the total sales revenue equal to the total expenses. This gives companies enough information in determining the price points of products.

Marginal costing also helps businesses determine the best use of raw materials and the optimal sales mix for products.

3. Cash Flow Analysis

Cash flow refers to the different inflows of cash into a company and outflows of cash from a company. Cash flow analysis is the examination of these inflows and outflows of cash during a particular period under consideration.

Managerial accountants engage in cash flow analysis to identify the impact of business decisions on the cash flow of a company. This cash flow concerns activities surrounding outflowing operational costs, outflowing investments, and in-flowing financing of a business.

Financial information is usually recorded on an accrual basis. Accrual accounting provides the financial position of a company at the end of a particular period. However, each transaction within this period is not accounted for with accrual accounting alone.

Cash flow analysis measures the impact of a particular transaction on the final financial position of a company. The cash inflow and outflow resulting from a single transaction are recorded and considered.

Proper cash flow analysis gives managerial accountants and administrators a chance to optimize the flow of cash within a company.

Optimization of cash flow ensures that a company has enough liquid assets to cover immediate expenses. Companies optimize cash flow so that they do not worry about future events and insufficient finances to complete them.

4. Inventory Turnover Analysis

Inventory turnover is a financial ratio that shows the number of times a company has sold and replaced inventory over a given period. Inventory turnover analysis involves the process of studying this ratio and coming up with enough information for better business administration.

Calculating the inventory turnover ratio helps companies to better determine the price of products and make better decisions on the production, marketing, and purchase of new inventory.

When calculating inventory turnover, two factors are important: the cost of goods sold (COGS) and the average beginning and ending inventory.

With inventory turnover analysis, managerial accountants can determine the cost of storing each unsold inventory. Optimizations can then be made to reduce the possibility or impact of excessive inventory.

5. Constraint Analysis

Constraints are limitations or restrictions that prevent a business process from fully materializing. Constraint analysis involves the identification and examination of possible bottleneck situations in the whole production line or sales process.

Bottlenecks cause delays in the business process of a company and can prove very costly in the end. The possible bottlenecks that may occur and their impact on the overall cash flow, revenue, and profit are determined by managerial accountants. Managers then use the generated information to optimize the whole business workflow to maneuver these constraints.

Constraint analysis is a crude process and constraints or bottlenecks can be inaccurately identified or missed entirely. So it is important that it remains as carefully executed and accurate as possible.

6. Financial Leverage Analysis

Financial leverage is the use of borrowed capital to increase the value of assets, investments, and return on investments. Financial leverage analysis involves the in-depth study of all the implications borne by a company after acquiring financial leverage.

Information comparing a company's debt and equity is provided by managerial accountants. These pieces of information help business administrators put financial leverage to their most productive use.

Information such as return on equity, debt to equity ratio, and total return on invested capital helps a company to properly manage the exploitation and repayment of financial leverage.

7. Account Receivable Management

Account receivables are the invoices or credits which a company expects to be remunerated by its debtors. The proper management of account receivables is an important form of managerial accounting.

Managing account receivable involves the process of ensuring that debtors pay their dues on time. It helps to prevent a company from running out of working capital to keep the business running.

Account receivables management also helps a company avoid situations of harmfully overdue payments or total non-payment of pending receivables.

Some of the different stages of this process involve determining if credit to a client should be extended, ensuring agreements are well documented, sending out invoices, sending out reminders, and increasing payment collection efforts, among others.

Techniques in Managerial Accounting

To provide as much beneficial information as possible, managerial accounting relies on a number of techniques. These techniques include forecasting, financial planning, and trend analysis, standard costing, budgetary control, funds flow analysis, and revaluation accounting.

1. Forecasting, Financial Planning, and Trend Analysis

Forecasting is the act of predicting how financial situations will shape the future. Trend analysis involves the study of patterns and trends of product costs to recognize reasons for unusual variances.

Forecasting and trend analysis work together in making financial planning easier and more accurate. Financial planning, accordingly, acts as one of the primary techniques of managerial accounting.

Appropriate financial planning helps a company to easily determine all its future needs. A company's future operations are also easily streamlined for achieving business goals and objectives.

Financial planning is a culmination of other techniques involved in achieving the internal goals of an organization. It involves the analysis of comparative financial statements and accounting ratios and the use of generated data to plan for the future.

2. Standard Costing

Standard costing involves the establishment of a standard total cost that is characteristic of efficient business operating conditions. Current costs of operation and goods or services are then compared to these standard costs.

With this form of comparative analysis, the variance between the standard cost and actual cost is determined. Problem areas are then pinpointed and remedial actions are executed to get things up to standard.

3. Budgetary Control

Budgetary control is another technique used for controlling costs in running a business. It is a technique used to guide and regulate the financial activities of a business.

Under budgetary control, future financial needs are documented alongside their costs and arranged in an orderly manner for efficient business operations.

Information related to capital expenditure is generated and analyzed. The crucial key metrics taken into account are the net present value (NPV) and internal rate of return (IRR).

Business operations are then executed in accordance with the estimated budget. The budget is usually based on or limited by the amount of capital a company has to invest.

4. Funds Flow Analysis

Funds flow analysis aims at providing an answer to the change in financial position as compared to other accounting periods. It compares the inflow and outflow of funds as documented in two comparative balance sheets.

Funds flow may seem the same as cash flow but they are differentiated on a very thin line. While cash flow involves all the cash inflow and outflow of a company, funds flow includes only the net cash within an organization that can be used as working capital.

This type of analysis tells where the flow of cash is coming from and how it is being used within a business. Proper funds flow analysis helps with future decisions on expenditure, comparative analysis, and the overall financial analysis and control of a company.

5. Revaluation Accounting

Revaluation is an accounting technique that involves the review of the recorded book value of an asset in relation to its true market value. Revaluation accounting is only used where the fair value of an asset can be reliably measured. A company then re-evaluates an asset in accordance with this fair value and ensures that the new valuation does not widely vary from it.

Revaluation accounting involves the act of recording increases or decreases in the value of a fixed asset. This accounting either credits or debits the asset account and any increase in value of an asset is credited into an equity account as a revaluation surplus.

Through this technique, managerial accountants ensure that the company's true capital is determined, preserved, and maintained. Financial statements are made more accurate and forecasts for future asset valuation become easier and more reliable.

Managerial Accounting Reports to Know

Reports generated from managerial accounting are done relative to the budget of a company. These reports help a business to understand how to allocate costs to stay within a budget while maximizing productivity.

Some of these reports include budget managerial reports, account receivable aging reports, performance reports, and cost managerial accounting reports.

1. Budget Managerial Reports

Budgets or budget managerial reports are reports on which other managerial accounting reports and activities are based.

A budget is generated by a business to create a financial framework according to which business goals can be achieved without overspending. It is usually based on past experiences and contains all the planned earnings and expenditures expected by a business within a period.

Operational and financial activities are streamlined in accordance with budgets and managers can cut costs and enter into contracts with vendors in accordance with it.

2. Account Receivable Aging Reports

An account receivable report is a periodic report that organizes a company's receivables according to the length of time the debt has remained unpaid. It helps a company to measure the financial health of its customers and determine the creditworthiness of each in case of future credit transactions.

Account receivable reports are important for companies that deal with a lot of debtors or lending institutions. With this report, you organize all the balance of credit receivable from your clients and can follow the periods allocated for repayment closely.

Outstanding invoices are tightly followed while debtors and repayment issues are easily identified. Cash flow policies are then revised to keep the company's budget workable.

3. Performance Reports

A performance report provides information about the outcome of an activity or the work of an individual. It compares the initial plan set out by a company with the current state of affairs, determining if business goals are being fulfilled or not.

The whole company, each department, and each employee in a company are considered in a performance report. It remains a good tool in properly managing business objectives and improving business workflow and day-to-day operations.

Underachieving departments and employees are provided with these performance reports and called to order according to their performance metrics.

Overachieving and constantly productive departments and employees are also easily identified, giving a company an idea of its most valued human assets.

Overall, performance reports help to compare the final outcome of a business workflow or operation with the initial budget and standard set for it. Decisions as to the future operations of a company are then easily carried out.

4. Cost Managerial Accounting Reports

Cost managerial accounting reports help businesses to compare the total cost of producing goods or services with the selling price for each unit. It contains all the costs for raw materials, overheads, and labor, among other additional costs in running a business.

With these reports, companies can determine the overall cost of production. Profit margins are then estimated and monitored in accordance with company goals. A proper understanding of costs and profit margins helps a company to optimize resources for increased productivity.

Some of the other managerial reports taken into account include competitor analysis reports, order information reports, and project reports. Apart from being internally generated, all managerial reports can also be outsourced to external expert institutions so that they remain as accurate as possible.

Managerial Accounting FAQ

The main objective of managerial accounting is to optimize a company's operating costs and maximize profits.  Managerial accounting involves identifying, measuring, analyzing, and interpreting an organization's financial statistics to provide actionable financial intelligence in terms of key metrics for managers. It offers suggestions on the economic decision-making process of an organization.

The job of a managerial accountant is to provide key insights that help a company's management team make many of its business decisions. They provide and analyze relevant financial and statistical data to be used in guiding the decision-makers of the company.  Aside from just crunching the numbers, managerial accountants also help companies choose and manage investments, as well as offer advice on financial decisions like budgeting.

The main difference between managerial accounting and financial accounting is the parties for which they provide financial information.  Managerial accounting varies from financial accounting in terms of its purpose. It provides internal managers or employees with useful insights that assist the organization's management in planning strategic operations. It helps them set realistic goals, and encourages an efficient directing of company resources. Financial accounting is more concerned with providing insights to external parties such as investors and financial bodies. While it has internal uses as well, it aims to provide financial information on the organization's operations and financial well-being to financial accounting investors, creditors, and industry regulators. Another difference in managerial and financial accounting is that managerial accounting is much less formal than financial accounting. Because management reports do not have to be issued to external parties, managerial accounting does not have a regulatory body like financial accounting where accountants have to follow GAAP standards in reporting financial information.

Four basic principles govern managerial accounting. The first principle is that the data provided by a managerial accountant should be relevant . They must provide managers with accurate, contextual, and up-to-date data that will provide vital insight into the cost model of the organization. The second principle of managerial accounting is that the insight provided must be influential. By doing this managers can obtain the necessary data to inform their decisions. Third, accountants must be able to analyze the efficiency of their managerial accounting operations and identify the scope for improvements.  By assessing opportunities and risks, they should be able to run simulations on the data to predict future outcomes and determine which outcome is best pursued. Results are not prioritized by what calculations are the most correct but by their impacts on the desired outcome. Last, accountants should be able to garner trust from other departments through stewardship. It means diligently managing relationships and resources so that the assets and reputation of the organization are protected. Ethics and proficiency are important attributes for this principle.

Managerial accounting involves more than just calculations, managerial accountants must be able to deduce vital information from these numbers that will guide financial planning.  By studying management accounting we can cultivate skills that allow us to become strategic partners in a company's decision-making process.

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Past and Present Use

Regulation and uniformity, reporting details, the bottom line.

• Corporate Finance
• Financial statements: Balance, income, cash flow, and equity

How Financial Accounting Differs From Managerial Accounting

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

Financial accounting and managerial accounting are two of the four largest branches of the profession, in addition to tax accounting and auditing. Despite many similarities in approach and usage, there are significant differences, most of them centering around compliance, accounting standards, and target audiences.

Key Takeaways

• Managerial accounting involves identifying, measuring, analyzing, interpreting, and communicating financial information to managers to help them set an organization's goals.
• Financial accounting involves recording and summarizing the stream of transactions and economic activity resulting from business operations and reporting it to investors and regulators.

Main Objectives of Both Accounting Practices

The main objective of managerial accounting is to produce useful information for a company's internal decision-making. Business managers collect information that feeds into strategic planning, helps management set realistic goals, and encourages an efficient directing of company resources.

Financial accounting has some internal uses as well, but its focus is on informing those outside of a company. The final accounts or financial statements produced through financial accounting are designed to disclose the firm's business performance and financial health.

Managerial accounting is created for a company's executives. Financial accounting is created for its investors, creditors, and industry regulators.

The information created through financial accounting is entirely historical. A financial statement contains data for a defined period of time.

Managerial accounting looks at past performance but also creates business forecasts . Business decisions are informed by this type of accounting.

Investors and creditors often use financial statements to create forecasts of their own. In this sense, financial accounting is not entirely backward-looking.

Nevertheless, no future forecasting is allowed in the statements issued by a financial accountant.

The biggest practical difference between financial accounting and managerial accounting relates to their legal status. Reports generated through managerial accounting are only circulated internally. Each company is free to create its own system and rules on managerial reports.

In contrast, financial accounting reports are highly regulated, especially the income statement , balance sheet , and cash flow statement . Since this information is released for public consumption and is highly anticipated by investors, companies are very careful about how they make calculations, how figures are reported, and in what format those reports appear.

The Financial Accounting Standards Board (FASB), under the aegis of the Securities and Exchange Commission (SEC), establishes financial accounting rules in the United States. The sum of these rules is referred to as generally accepted accounting principles (GAAP).

This uniformity allows investors, lenders, and analysts to compare companies directly on the basis of their financial statements.

Moreover, financial statements are released on a regular schedule, establishing consistency of external information flows.

Financial accounting reports tend to be aggregated, concise, and generalized. Information is simultaneously more transparent and less revealing.

This is not the case with managerial accounting as there can be reasons to highlight information that is particularly relevant or even downplay information that is not. For example, you might want to bury lower bonuses in an overall number for expenses to avoid angering mid-to-lower level employees who peruse the report.

Managerial accounting reports are highly detailed, technical, specific, and even exploratory in nature. Companies are always looking for a competitive advantage, so they may examine a multitude of details that could seem pedantic or confusing to outside parties.

What Are the 4 Types of Accountant?

There are four main specializations that an accountant can pursue:

• A tax accountant works for companies or individuals to prepare their tax returns. This is a year-round job when it involves large companies or high-net-worth individuals.
• An auditor examines books prepared by other accountants to ensure that they are correct and comply with tax laws.
• A financial accountant prepares detailed reports on a public company's income and outflow for the past quarter and year that are sent to shareholders and regulators.
• A managerial accountant prepares financial reports that help executives make decisions about the future direction of the company.

What Do Accountants Do All Day?

Whether they are managerial accountants or financial accountants, they spend much of their time keeping the books. They are responsible for accurately recording every transaction that a company makes, whether it's paying a contractor or buying a new machine.

Their deep understanding of the company's transactions allows them to specialize in financial reporting or managerial reporting.

What Are the Highest-Paid Jobs in Accounting?

As in any profession, there are steps up the ladder in accounting, some of them dependent on post-graduate education as well as professional experience. The top three:

• A company controller is the head accountant and is deeply involved in the company's management decisions.
• A certified management accountant (CMA) has special training in strategic thinking and business analysis.
• A certified public accountant (CPA) is a state-licensed professional who has completed post-graduate work and has some accounting experience. (Outside the U.S. this is a chartered accountant.)

The key differences between managerial accounting and financial accounting relate to the intended users of the information.

Managerial accounting information is aimed at helping managers make well-informed business decisions on the direction of the company. Financial accounting reports a company's performance for a specific period of time and does it in the most straightforward way possible.

Financial accountants must conform to certain standards to maintain the company's publicly traded status. Even privately-held companies in the U.S. must conform to GAAP standards in order to meet the disclosure requirements of financial institutions that they borrow money from.

Because managerial accounting is not for external users, it can be modified to meet the timely specific needs of its intended users. This may vary considerably by company or even by department within a company.

Financial Accounting Standards Board. " About the FASB ."

Brighton College. " Top 10 Highest Paying Accounting Careers ."

• Accounting Explained With Brief History and Modern Job Requirements 1 of 51
• What Is the Accounting Equation, and How Do You Calculate It? 2 of 51
• What Is an Asset? Definition, Types, and Examples 3 of 51
• Liability: Definition, Types, Example, and Assets vs. Liabilities 4 of 51
• Equity Definition: What it is, How It Works and How to Calculate It 5 of 51
• Revenue Definition, Formula, Calculation, and Examples 6 of 51
• Expense: Definition, Types, and How Expenses Are Recorded 7 of 51
• Current Assets vs. Noncurrent Assets: What's the Difference? 8 of 51
• What Is Accounting Theory in Financial Reporting? 9 of 51
• Accounting Principles Explained: How They Work, GAAP, IFRS 10 of 51
• Accounting Standard Definition: How It Works 11 of 51
• Accounting Convention: Definition, Methods, and Applications 12 of 51
• What Are Accounting Policies and How Are They Used? With Examples 13 of 51
• How Are Principles-Based and Rules-Based Accounting Different? 14 of 51
• What Are Accounting Methods? Definition, Types, and Example 15 of 51
• What Is Accrual Accounting, and How Does It Work? 16 of 51
• Cash Accounting Definition, Example & Limitations 17 of 51
• Accrual Accounting vs. Cash Basis Accounting: What's the Difference? 18 of 51
• Financial Accounting Standards Board (FASB): Definition and How It Works 19 of 51
• Generally Accepted Accounting Principles (GAAP): Definition, Standards and Rules 20 of 51
• What Are International Financial Reporting Standards (IFRS)? 21 of 51
• IFRS vs. GAAP: What's the Difference? 22 of 51
• How Does US Accounting Differ From International Accounting? 23 of 51
• Cash Flow Statement: What It Is and Examples 24 of 51
• Breaking Down The Balance Sheet 25 of 51
• Income Statement: How to Read and Use It 26 of 51
• What Does an Accountant Do? 27 of 51
• Financial Accounting Meaning, Principles, and Why It Matters 28 of 51
• How Does Financial Accounting Help Decision-Making? 29 of 51
• Corporate Finance Definition and Activities 30 of 51
• How Financial Accounting Differs From Managerial Accounting 31 of 51
• Cost Accounting: Definition and Types With Examples 32 of 51
• Certified Public Accountant: What the CPA Credential Means 33 of 51
• What Is a Chartered Accountant (CA) and What Do They Do? 34 of 51
• Accountant vs. Financial Planner: What's the Difference? 35 of 51
• Auditor: What It Is, 4 Types, and Qualifications 36 of 51
• Audit: What It Means in Finance and Accounting, and 3 Main Types 37 of 51
• Tax Accounting: Definition, Types, vs. Financial Accounting 38 of 51
• Forensic Accounting: What It Is, How It's Used 39 of 51
• Chart of Accounts (COA) Definition, How It Works, and Example 40 of 51
• What Is a Journal in Accounting, Investing, and Trading? 41 of 51
• Double Entry: What It Means in Accounting and How It's Used 42 of 51
• Debit: Definition and Relationship to Credit 43 of 51
• Credit: What It Is and How It Works 44 of 51
• Closing Entry 45 of 51
• What Is an Invoice? It's Parts and Why They Are Important 46 of 51
• 6 Components of an Accounting Information System (AIS) 47 of 51
• Inventory Accounting: Definition, How It Works, Advantages 48 of 51
• Last In, First Out (LIFO): The Inventory Cost Method Explained 49 of 51
• The FIFO Method: First In, First Out 50 of 51
• Average Cost Method: Definition and Formula with Example 51 of 51

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1.3 Explain the Primary Roles and Skills Required of Managerial Accountants

It is clear that management accountants must have a solid foundation in accounting, in both financial and managerial accounting, but other than accounting skills, what makes good managerial accountants?

• They must have knowledge of the business in which they are working. Commercial awareness is knowing how a business is run and how it is influenced by the external environment and knowing and understanding the overall industry within which the business is operating.
• Collaboration , which involves working in cross-functional teams and earning the trust and respect of colleagues in order to complete a task, is vital to improving managerial accounting talents. They should be “team players.”
• Management accountants should have effective communication skills that allow them to convey accounting information in both written and oral forms in a way that the intended audience can understand. Being able to gather the data quickly and accurately is important, but the data is meaningless if it is not presented in an intuitive style that the audience can understand.
• Strong technology skills are also essential. These skills include not only accounting and reporting software but also other programs that would assist in automating processes, improving efficiencies, and adding value to the company. For many companies, additional software and accompanying technology are often needed for both their financial and managerial accounting functions. For example, enterprise resource planning (ERP) systems often play a major role in the creation of comprehensive accounting systems. This additional support is often provided by outside suppliers such as Hyperion , Cognos , Sage , SAP , PeopleSoft , and Oracle .
• Managerial accountants must possess extensive analytical skills. They must regularly work with financial analysts and management personnel to find ways to reduce expenses and analyze budgets. These skills include the ability to envision, verbalize, conceptualize, or solve both multifaceted and simplistic problems by making choices that make sense with the given information.
• Managerial accountants must have ethics and values. They should be an example to others and encourage them to follow internal control practices and procedures. Ethics is discussed in more detail in Describe the role of the Institute of Management Accountants and the use of ethical standards .

Managers at all levels make many different types of decisions every day, but to make most decisions, they need specific information. Some information is easily obtainable, and some is not. Managers do not always know what information they need or what is available, and they need to know if the decisions they make are having the desired outcome and meeting specific goals.

To this point, we’ve described managerial accounting as a process. The following definition considers it a profession. Management accountants are the individuals who help management with this information. The Institute of Management Accountants (IMA) defines management accounting as “a profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy.” 4

The IMA also reports that nearly 75 percent of financial professionals work in business as management accountants in positions such as financial analysts, accounting managers, controllers, and chief financial officers. 5 These professionals have a significant impact on businesses through influencing the decision-making process and business strategy.

Management accountants work at various levels of the organization, from the project level to the division level to the controller and chief financial officer. Often, management accountants work where they are needed and not necessarily at corporate headquarters. They tend to be hands-on in the decision-making process. They need many types of information to inform the many decisions they must make.

Continuing Application

Who uses managerial accounting.

When most people think of an accounting job, they think of someone who does taxes or who puts together financial statements. However, almost all jobs use accounting information, particularly managerial accounting information. Table 1.4 shows how certain professions might use managerial accounting information. Can you think of other examples?

Organizational Structure

Most companies have an organizational chart that displays the configuration and the delegation of authority in the decision-making processes ( Figure 1.7 ). The structure helps define roles and responsibilities. The organizational charts provide guidance to employees and other stakeholders by outlining the official reporting affiliations that direct the workflow within the organization. If the company is particularly efficient, it also will include contact information within the chart. This is a convenient directory to circulate among employees. It helps them find a particular person in a certain position, or determine whom to speak to about certain areas within the company, or even identify a specific person’s supervisor to report positive or negative work behavior.

Stockholders of a company are the owners; however, they elect a board of directors to manage that company for them. The board selects the officers who will implement the policies and strategic goals that the board has set in place. The chief executive officer (CEO) is the corporation officer who has the overall responsibility for the management of the company. The person overseeing all of the accounting and finance concerns is the chief financial officer (CFO) . This individual is in charge of the financial planning and record-keeping of the organization and reports to the CEO. The controller is responsible for the accounting side of the business (accounting records, financial statements, tax returns, and internal reports) and reports to the CFO. Also reporting to the CFO is the treasurer , who is in control of the finance side of the business (cash position, corporation funds). An additional area that sometimes falls under the control of the CFO is the internal audit staff. Internal auditors supply independent assurance that a company’s internal control processes are effective. However, there is strong support for keeping the internal audit staff outside of the CFO, because of a possible conflict of interest.

Think It Through

Managing cash flow.

Assume you are the managerial accountant at Anchor Head Brewery, a Midwest craft brewery that distributes nationwide. Its year-end is December 31. Because of poor cash flow management, the CFO has some concerns about having enough cash to be able to pay the tax bill that is expected. In early December, the purchasing department bought excess hops, barley, malt, oats, and yeast in anticipation of brewing more beer for the holiday and Super Bowl seasons. In order to decrease the company’s net income, thereby reducing their taxable income, the CFO tells you to enter the purchase of this inventory as part of the “Supplies Expense” in the current year.

• In which account should these materials be recorded?
• How should you reply to this request?
• Should you bring this matter to another executive officer?

The field of managerial accounting, or corporate accounting, is composed of the financial and accounting responsibilities required to operate any type of business. Managerial accountants are employed within organizations to monitor costs, sales, budgets, and spending; conduct audits; predict future requirements; and aid the executive leaders of the organization with financial decision-making.

Figure 1.8 lists approximate salaries for several financial and managerial accounting employment positions. In reviewing the salary information, be aware that there are often major variances in salaries based on geographical locations. For example, a cost accountant manager in San Francisco, California, would typically be paid significantly more than an accountant in a similar position in Fayetteville, Arkansas. However, the cost of living, especially housing costs, in San Francisco is also significantly higher than the cost of living in Fayetteville.

Managerial accountants find employment opportunities in a wide variety of settings and industries. Professionals in this discipline are in high demand from public and private companies, government agencies, and not-for-profit entities (NFPs). Some areas of management accounting are versatile to any sector (corporate, government, or NFP).

• A financial analyst assists in preparing budgets, tracking actual costs, examining task performance, scrutinizing different types of variances, and supporting other management personnel in organizing forecasts and projections.
• A budget analyst arranges and manages the master budget and compares master budget projections to actual results. This individual must be vastly aware of all operations in the budget and work closely with the rest of the accounting staff as well as management personnel.
• An internal auditor typically reports to high-level executives within the company. An internal auditor is often called on to investigate budget variances, industrial sabotage, poor work quality, fraud, and theft. He or she also safeguards the internal controls and confirms they are working and effective.
• A cash-management accountant has responsibilities that include transferring monies between accounts, monitoring deposits and payments, reconciling cash balances, creating and tracking cash forecasts, and performing all other cash-related financial processes.

Other areas of managerial accounting are specific to the sector in which accountants work. For example, the area of cost accounting is more specific to the corporate or manufacturing sector. These cost accountants amass large sums of data, checking for accuracy and then formulating the cost of raw materials, work in process, finished goods, labor, overhead, and other associated manufacturing costs.

Governmental entities also use accounting to communicate with their constituents. Government agencies include all levels of government, federal, state, county, and city, including military, law enforcement, airports, and school systems. Government accountants deal with budgets, auditing, and payroll, the same as all other managerial accountants. However, they must follow a different set of accounting rules called the Governmental Accounting Standards Board (GASB).

Nonprofit (not-for-profit) organizations are tax-exempt organizations that serve their communities in a variety of areas, such as religion, education, social services, health care, and the arts. Managerial accountants in this area are most often focused on budgets. The biggest difference between a corporate budget analyst and a nonprofit budget analyst is that the nonprofit analyst works the budget backward, compared to the corporate analyst. For example, if a corporation was selling widgets, its budget would start with a sales forecast of how many widgets the company thinks it can sell. This gives the company a forecast of how much it can spend on expenses and fixed assets. The nonprofit budget analysts often start with the expenses. They forecast how much the expenses will be in order to continue to offer their service to the community. From there, they then adjust how much they will need to obtain through fundraising, donations, grants, or other sources to meet their expenses.

Career Planning

All companies need to plan ahead in order to continuously move forward. Their top management must take into consideration where they want the company to be in the next three to five years. Just like a company, you also need to consider where you want to be in three to five years, and you need to start taking strides now to accomplish what it is you need to in order to get there ( Figure 1.9 ).

Answer the following:

• What job would you like to be doing in three to five years? What is your plan for getting there? Identify five to ten steps needed.
• Do you have a specific company you would like to be working for in the next three to five years? What are the reasons you want to work for them?
• In order to acquire the position you want, at the company you want, you need a résumé. Your résumé is like the company report of “you.” It needs to offer reliable information about your experiences and achievements. What are the basic elements of a résumé, and how will you provide reassurance that the information on your résumé is trustworthy?

Answers will vary. Sample answer:

• complete double major in business and building construction
• in the summers before graduation, work for a local handyman franchise
• after graduation, work for a home builder as a project manager
• while working, save money for five years to be used to start my own company
• put together a business plan
• start my own business six years after graduation
• I would like to work for a national home builder such as Pulte or Toll Brothers . Ideally, I would have an internship with one of them during college. I would like to work for a national builder or a large regional builder because they already have a good business model and I could learn how that works.

Certifications

There are many distinct accounting certifications that accountants can earn in order to improve their careers, attain promotions, and acquire raises in their pay. The certifications are somewhat different from each other and focused toward different career paths. Many accountants have more than one of these credentials to diversify their paths.

The Certified Public Accountant (CPA) is considered the top tier in accounting certifications. Many companies or positions require CPA certification. For example, most employees at accounting firms earn a CPA certificate within the first few of years of graduation. Some positions, such as controller or CFO, often require CPA certification. In the United States, each state has different educational and experience requirements in order to obtain the CPA. The certification requires passing the four-part CPA exam as well. This is administered by the American Institute of Certified Public Accountants (AICPA). There are four parts to the exam: Financial Accounting and Reporting (FAR), Auditing and Attestation (AUD), Regulation (REG), and Business Environment and Concepts (BEC). Each part is graded on a 100-point scale. A score of seventy-five or greater must be achieved in order to pass each section. The exams can be intimidating, as it is a difficult process to go through. As of 2017, the AICPA reported a pass rate of less than 50 percent, which may contribute to its high regard around the world. After passing the CPA exam, candidates must work for one year under the supervision of a licensed CPA before their own license is approved by a state regulatory agency. Those certified in public accounting work in all areas of accounting. However, do not assume that being a CPA is the only way to secure an excellent position in accounting.

The Certified Management Accountant (CMA) is another top-tiered certification for accountants. The CMA title identifies the individual as a specialist in corporate accounting management. The CMA has some overlap with the CPA, but the CPA is focused more on compliance, tax, and controls. CMAs favor financial analytics, budgeting, and strategic assessment. This certification requires the minimum of a bachelor’s degree from an accredited college or university, two years of work experience, and successfully passing both parts of the exam. Part one of the exam covers financial reporting, planning, performance, and controls. Part two focuses on financial decision-making. The exam is administered by the IMA and has a 50 percent passing rate globally.

Not as popular in the United States as the CPA, the Chartered Financial Analyst (CFA) certification is more in demand throughout Europe and Asia. This certification prepares accountants for a career in the finance and investment domains. Requirements of this credential include a bachelor’s degree or four years’ worth of experience, plus passing all three sections of the exam. The exam is administered by the CFA Institute. There are three separate exams, each one taking up to six hours to complete. The exams must be completed in succession. This credential is considered one of the more rigorous ones to obtain, with a passing rate of less than 45 percent.

The Enrolled Agent (EA) credential focuses on a career in taxation, whether it is working in tax preparation for the public, internally for a corporation, or for the government at the Internal Revenue Service (IRS). The EA certification was created by the IRS to signify significant knowledge of the US tax code and the ability to apply the concepts of that code. Enrolled agents have the privilege of being able to sign tax returns as paid preparers, and they are able to represent their clients in front of the IRS. The EA certification can be obtained by passing a three-part exam covering all types of individual and business tax returns. Once the certification is obtained, enrolled agents must follow strict ethical standards and complete 72 hours of continuing education courses every three years.

The Certified Internal Auditor (CIA) is a credential offered by the Institute of Internal Auditors (IIA) and is one of the only certifications that is accepted worldwide. CIAs tend to be employed in auditing areas within government agencies, banking, finance, or corporations. They examine financial documents to investigate deficiencies in internal controls. Requirements for this certification include a bachelor’s degree, two years of work experience in a related field, and passing the three sections of the examination. Also required are providing character references, following a code of ethics, and continuing education.

The Certified Fraud Examiner (CFE) certification signifies proven proficiency in fraud prevention, detection, and deterrence. CFEs are instructed in how to identify the red flags that may indicate fraudulent actions. The designation is awarded by the Association of Certified Fraud Examiners (ACFE) after applicants have met the following requirements: bachelor’s degree, two years of work-related experience, moral character references, and the passing of four separate exams.

The Certified Government Auditing Professional (CGAP) designation is exclusively for auditors employed throughout the public sector (federal, state, local) and is offered by the IIA. Requirements for this credential are the same as for the CIA. The exam has 115 multiple-choice questions and covers four areas focusing on proficiency in generally accepted government auditing standards (GAGAS).

These certifications lead to different job responsibilities and different career paths. As indicated, each of the certifications requires varying degrees of education and has exams that are unique to that particular certification. All of these certifications also require a certain number of hours of continuing education in order to keep the certification active. This ensures that the certificate holder is up to date on changes in the field. There are always many opportunities throughout the year to obtain continuing education credits through seminars, webinars, symposiums, and online and in-person classes.

Link to Learning

Accounting.com has an application that will help to acquaint you with the different opportunities available, skill sets that may be required, and different salaries for accounting careers. See the Careers in Accounting report for more information.

• 4 “Management Accounting Careers.” Institute of Management Accountants. https://www.imanet.org/students/management-accounting-careers?ssopc=1
• 5 “Management Accounting Careers.” Institute of Management Accountants. https://www.imanet.org/students/management-accounting-careers?ssopc=1

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• Authors: Mitchell Franklin, Patty Graybeal, Dixon Cooper
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• Book title: Principles of Accounting, Volume 2: Managerial Accounting
• Publication date: Feb 14, 2019
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Managerial Accounting - Week 4 Assignment

2024 Accounting MOVE Project launches

Registration is now open for this year's Accounting MOVE Project, with the theme "Private Equity's Impact on Accounting Career Paths." 

The Accounting MOVE Project is an annual survey of accounting and financial firms that measures demographic data and workplace culture to help advance women and other underrepresented groups in the profession. It creates annual lists of the best firms for women and equity leadership based on this research. The results will be released Oct. 25 in conjunction with the Accounting & Financial Women's Alliance Women Who Count Conference. 

"Private equity is definitely shifting the dynamic of how firms are managed and will certainly impact traditional career paths," Cindy Stanley, executive director for the Accounting & Financial Women's Alliance, said in a statement. "We believe this research is important to the profession as a whole, but particularly to women in accounting who are more likely to feel the impacts of these shifts. We encourage firms to participate in the Accounting MOVE Project so we can uncover as many data points and best practices as possible to share with the profession so we can identify new ways for women to succeed on their own terms." 

Another theme to be explored in this year's MOVE Project is defending the benefits of diversity, equity and inclusion. The project will examine how successful firms build and grow their DEI initiatives, how employees — particularly Gen Z — respond to firms with DEI commitments, and how these commitments affect client trust and service delivery.

"Creating a culture where employees can thrive in their careers without giving up their personal lives, where client needs are met or exceeded, and where the firm as a whole succeeds is not an impossible goal," Tricia Bencich, inclusion and social responsibility associate director at Top 100 Firm Moss Adams and founding partner of the Accounting MOVE Project, said in a statement. "It does take a commitment to listening to your people, doing all you can to create an inclusive culture, and understanding that one size never fits all."

Key dates and deadlines for the 2024 Accounting MOVE Project include:

• April 8: Registration opens;
• April 29: Survey opens; 
• July 28: Survey closes;
• October 15: Best Firms for Women & Best Firms for Equity Leadership winners informed; and
• October 25: MOVE Project results and report released in conjunction with the AFWA's "Women Who Count conference.

The new standard aims to give investors more readily comparable information about companies operating profits in one of the biggest changes to IFRS in decades.

The firm may pursue its claims through an administrative office at the agency after agreeing with the federal government to dismiss its case.

Crete Professionals Alliance added Reid Tax & Advisory Services; and Financial Independence joined Level Four Financial.

The board imposed its largest-ever penalty of $25 million against KPMG's firm in the Netherlands, in addition to $2 million in fines against Deloitte's firms in Indonesia and the Philippines.

Plus, Google is making massive changes to Chrome, AI-powered tax chatbots aren't performing well, and seven other things that happened in technology this past month.

The tax prep giant settled a proposed class-action suit that claimed it schemed to prevent employees from moving between corporate and franchisers.

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Nearly Half of 2023’s Biggest Bankruptcies Lacked Key Warnings

By Nicola M. White

Both management and auditors at nearly half of the 20 largest public companies that filed for bankruptcy in 2023 failed to wave key financial reporting red flags beforehand.

Retailer Party City Co. , drug chain Rite Aid Corp. , cargo hauler Yellow Corp., and online teeth alignment company SmileDirectClub Inc. are among the largest companies whose financial statements before bankruptcy disclosed financial woes but never specifically spelled out substantial doubts about their ability to survive another year, known in accounting lingo as “continuing as a going concern,” according to a Bloomberg Tax analysis.

The omissions contrast with the majority of US corporate bankruptcies, in which 70% of auditors and management flagged doubts about their ability to stay afloat.

The lack of warnings come as the US audit regulator considers updating its requirements for auditors’ annual assessment of their clients’ viability. The lapses show how complicated the going concern judgment is and how fraught the behind-the-scenes discussions can be. The companies did not respond to requests for comment.

These warnings often are seen as a death knell; no one—not the auditor, not management itself—is eager to make the call and potentially doom a business that has a chance of turning around.

“Sometimes when you issue that going concern, it can be a self-fulfilling prophesy,” said Preeti Choudhary, accounting professor at the University of Arizona’s Eller College of Management.

Seeing an auditor or management cast doubts can make lenders tighten credit or put workers on edge. Customers also think twice about buying big-ticket items in case a manufacturer doesn’t survive long enough to honor warranties, said Jonathan Nus, managing director at advisory firm Alvarez & Marsal.

“Anytime there’s that headline risk, there’s this threat of a slippery slope,” Nus said. “You could see how all those issues manifest themselves.”

Dual Requirements

Both the US accounting standard-setter and the US audit watchdog require regular assessments of a company’s ability to stay afloat, as a way of giving the market early distress signals. The Public Company Accounting Oversight Board requires external auditors once a year to assess whether it’s probable a company can continue as a going concern over the next 12 months. When an auditor has substantial doubt, the firm must include a special note in the company’s financial statement. Headlines often ensue.

But these assessments only come once a year. After years of complaints that auditor warnings came well after the market knows a company’s in trouble, the Financial Accounting Standards Board in 2014 established new rules for businesses themselves. Every quarter, public companies’ top management must assess if there are doubts about the odds of staying in business. If there are problems, then companies must disclose them and share plans to fix them.

Most companies that filed for bankruptcy last year indicated trouble was brewing, both through auditor warnings and disclosures from companies themselves, according to a Bloomberg Tax analysis of securities filings and information from research firm BankruptcyData.

But the system isn’t perfect, in large part because of the judgment involved, Choudhary said.

“I wouldn’t expect there to be a full one-to-one—that every bankruptcy has been flagged by a going concern,” she said. “That’s probably not reasonable to expect. But at the same time, is there a way to give earlier warnings?”

The US audit regulator is trying to figure that out. The PCAOB expects to issue a proposal later this year that would refresh its going concern requirements as part of the board’s ambitious agenda to modernize the US audit rulebook. The effort attempts to overhaul many requirements that pre-date the regulator’s 2002 formation in response to accounting scandals that sank Enron Corp. and WorldCom Inc.

Updating the PCAOB’s going concerns rules have long been a priority for investors, who successfully lobbied to remove a previous board chair after the project, among others, was dropped from the board’s agenda.

Ernst & Young LLP, which audited Party City and SmileDirectClub, did not respond to requests for comment.

Hints of Trouble

In the absence of explicit going concern disclosures, some of the companies that filed for bankruptcy in 2023 beefed up risk disclosures and sharpened language to convey how shaky their future could be without explicitly saying they might go out of business within a year.

Yellow Corp. in a financial statement issued one month before filing for bankruptcy noted it needed “substantial additional liquidity” to meet its debt obligations, but did not cite a going concern risk.

Rite Aid management told the market the company was “highly leveraged” and needed to restructure to shore up its liquidity, but warned it couldn’t guarantee it would be successful in a quarterly filing published in July. The first time the company mentioned doubts about continuing as a going concern was in the financial statement it issued three days after filing for bankruptcy.

At retailer Tuesday Morning Corp., disclosures also reveal insight into tricky conversations. The company’s auditor, Grant Thornton LLP listed the question about whether the company could continue as a going concern as a critical audit matter, one of the thorniest areas it had to vet, according to the company’s 10-K. In November 2022, the company itself disclosed that it assessed whether it needed to wave a going concern flag, but concluded that new funding would keep operations going for the next 12 months. It filed for bankruptcy five months later.

Bed Bath & Beyond Inc.'s financial statements also offered clues about fraught discussions. The company’s year-end 2021 10-K—published almost a full year before it filed for bankruptcy protection in April 2023—contained no direct going concern warning from its auditor. In a quarterly report published in September 2022 , executives revealed that they discussed whether to issue a going concern warning but determined the company would survive. By January 2023, three months before filing for bankruptcy, management waved the red flag in a filing saying the company would miss the deadline to file its quarterly report and there were substantial doubts about the ability to continue as a going concern.

In at least one of 2023’s high-profile bankruptcies, however, there was neither an explicit going concern warning nor strong hints at problems. The financial statements of Silicon Valley Bank , whose March 2023 collapse triggered a regional banking crisis, contained no mention of a risk to remain a going concern.

KPMG LLP, which audited Yellow Corp., Silicon Valley Bank, and Bed Bath & Beyond Inc., declined to comment.

Drama over the going concern warning played out between Party City and its long-time auditor EY in June when the firm quit auditing the party supply chain after saying it disagreed with how and when the company should have warned the market about a potential going concern alert. The company issued its third-quarter 10-Q in November 2022 without a going concern warning and filed for bankruptcy protection two months later.

The company has since re-issued that third-quarter 2022 10-Q to to state it should have filed a going concern warning at the time. But unlike some of the other companies that closed up shop in 2023, Party City was able to emerge from bankruptcy in the fall of 2023, handing ownership of the company to lenders and shrinking its debt load by about $1 billion. The company in its most recent 10-K filing disclosed there no longer were doubts about its ability to stay in business.

“It’s hard to point fingers because the dynamics of the industry in which companies operate or the dynamics of the business is getting disrupted is quite accelerated these days,” Nus said. “What looked reasonable yesterday may be very different tomorrow.”

— With assistance from Amanda Iacone .

To contact the reporter on this story: Nicola M. White in Washington at [email protected]

To contact the editors responsible for this story: Amelia Gruber Cohn at [email protected] ; Jeff Harrington at [email protected]

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