Top Management Accounting Concepts and Techniques

Posted by Maria Katrina dela Cruz

Feb 12, 2021 7:48:00 AM

More than the financial facet, accounting also focuses on the risk management and strategy formation aspect of the business. Through the concepts of management accounting, you can make better decisions for your company and steer it towards growth.  

practicing the concepts of management accounting
Management reports give you a clear insight into how your business is doing; making it possible to avoid any shortfalls along the way. They also emphasize the financial impact of your business decisions, identify key performance indicators (KPIs) that bring vigor in your company and enumerate the metrics that will disrupt your industry in the coming years.

Management accounting vs. financial accounting 

To better understand the difference between management accounting and financial accounting, we presented the main points of distinction between the two practices. 

Management Accounting

 

Financial Accounting

Deals with internal accounting matters to support business strategy.

Scope

Focuses on the technical side of accounting, including bookkeeping and recording of financial transactions.

Specific only for internal company rules

Standard

Follows the Generally Accepted Accounting Principles (GAAP).

Subjective and futuristic. It interprets data to forecast future situations. Its forward looking practice can be subjective as well. 

Data Processing

Objective and historical. It processes information from past events, therefore making it more factual. 

Strictly confidential and restricted to internal affairs. 

Confidentiality

Serves external stakeholders and potential investors.

Reports are prepared more frequently - monthly, weekly, or even daily.

Frequency

Reports are issued quarterly or annually.

 

Read Next: Role of a Management Accountant and How they Support CFOs

But what does management accounting really bring to the table? Find out below the top basic techniques and concepts in management accounting and how they work.

  • Financial management 

Financial management is a management accounting tool that focuses on properly allocating financial resources of the company to better achieve the business goals.  Through this practice, you can identify and form both short and long-term policies that will create the road towards financial stability.

This facet is the application of management standards to the financial resources of the company, making it an important piece of the strategic planning and organizing of official business financial undertakings.

  • Financial statement analysis 

While financial statements are important in measuring an enterprise’s growth, understanding the data in the documents are also as crucial. Business managers and executives use these financial statements to present forecasts about future revenue, debt capacity and maturity, and profitability as well. 

The analyses of such financial statements are done through comparative financial statements, trend analysis, cash flow statements and ratio analysis.

  • Cost- Benefit analysis (CBA) 

Before pushing through a project, you should take into consideration its benefits and the overhead costs that comes with it. This process is more commonly known as the cost-benefit analysis or CBA.

In the event that the costs outweigh the advantages of a business project, CBA presents possible alternatives in terms of labor, time and expenses. This helps managers to measure which course of action is best worth allocating the resources at. 

  • Standard costing 

Standard costing is the principle of creating an estimated cost in substitution of the actual cost for a product, operation or activity. 

When actual costs and expected costs are compared, their variances are presented to pinpoint their differences. The close approximation of estimated cost saves them more time and gives them more cost control.

  • Marginal costing 

Marginal costing means finding out the optimal production quantity where it costs less to produce additional units. This management accounting practice fixes the selling price of a product, among other things, which is mostly based on fixed cost, variable cost and contribution.

Marginal cost is calculated by dividing the change in manufacturing costs by the change in the quantity produced. In the event that a company works in this perfect condition, they can maximize the profits. 

 

Through the concepts of management accounting, organization heads can better know which aspect of the company will deliver a promising growth and return the investment in the future. 

For the meantime, let the experts handle the accounting works for your business. D&V Philippines has extensive experience in management accounting guaranteed to help you make the best financial decisions for your firm. You can get our Outsourcing: How to Make it Work whitepaper to learn how outsourcing with us can contribute to the achievement of your business goals.

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Topics: Financial Management and Analysis

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