Managerial Accounting Basics

(L.O. 1) Managerial accounting is a field of accounting that provides economic and financial information for managers and other internal users. Managerial accounting applies to all types of businesses—service, merchandising, and manufacturing—and to all forms of business organizations—proprietorships, partnerships and corporations. Moreover, managerial accounting is needed in not-for-profit entities as well as in profit-oriented enterprises. Comparing Managerial and Financial Accounting There are both similarities and differences between managerial and financial accounting. Both fields of accounting deal with the economic events of a business and require that the results of that company’s economic events be quantified and communicated to interested parties. The principal differences are the (1) primary users of reports, (2) types and frequency of reports, (3) purpose of reports, (4) content of reports, and (5) verification process. The role of the managerial accountant has changed in recent years. Whereas in the past their primary concern used to be collecting and reporting costs to management, today they also evaluate how well the company is using its resources and providing information to cross-functional teams comprised of personnel from production, operations, marketing, engineering, and quality control. Management Functions Managers perform three broad functions within an organization: Planning requires managers to look ahead and to establish objectives. Directing involves coordinating a company’s diverse activities and human resources to produce a smooth-running operation. Controlling is the process of keeping the firm’s activities on track. Organizational Structure In order to assist in carrying out management functions, most companies prepare organization charts to show the interrelationships of activities and the delegation of authority and responsibility with the company. Stockholders own the corporation but manage the company through a board of directors. The chief executive officer (CEO) has overall responsibility for managing the business. The chief financial officer (CFO) is responsible for all of the accounting and finance issues the company faces. The CFO is supported by the controller and the treasurer.