What is Managerial Accounting?
Type of Accounting and Their Characteristics
Financial accounting vs Managerial account
Financial accounting primarily focuses on preparing the balance sheet, income statement, and cash flow statement—all of which contain historical information. As well as their use by company insiders, these documents are also used by parties external to the company which are the shareholders and creditors.
In order for those parties to compare financial statements from different entities, companies must comply with GAAP (Generally Accepted Accounting Principles). GAAP is a set of rules that standardizes the reporting and recording of companies' financial data. For example, GAAP stipulates that revenue cannot be recognized until a product is delivered to a customer.
Managerial account or cost accounting
Managerial account, also known as cost accounting involves the identification, measurement, analysis, and interpretation of the production, service, and other operating costs of a business. Managerial accounting's focus is in some ways opposite to that of financial accounting. Based on what we know of financial accounting, we can deduce that managerial accounting is for internal use, it does not follow GAAP, includes future projections and often reports on individual divisions and departments.
Differences Between Financial Accounting and Managerial Accounting
|Managerial accounting||Financial accounting|
|used primarily by internal personnel||used by company insiders and external parties|
|may present financial statements for individual departments, divisions, products, etc.||presents overall company financial information in accordance with GAAP|
|may contain future projections||contains primarily historical information|
Manufacturing Cost or Production costs
Categories of Manufacturing Costs: direct materials, direct labor and manufacturing overhead
Categories of manufacturing overhead
|Direct material costs||the costs of raw materials|
|Direct labor costs||salaries of manufacturing employees|
|Manufacturing overhead||production costs that are not direct material or labor costs|
|Indirect material costs||costs for materials that are not easily traced to individual products|
|Indirect labor costs||salaries of employees who support production, such as factory supervisors|
|Nonmanufacturing costs||selling, general, and administrative costs|