A Perspective of Managerial Accounting

Author : Dimas Bayu Pradipta

In general, accounting is an activity carried out to keep track of all the financial transactions either by cash or by credit, which takes place in an organization. Accounting is the only means to get reports on the financial status of the company and there by increasing the profitability of an organization, which in turn is the ultimate aim of any organization.

There are two types of accounting, one is financial accounting and the other one is managerial accounting or cost accounting. “financial acccounting” mostly deals with projecting the financial status of a company to the shareholders, creditors outside an organization. So this can be considered to be more useful for a larger organization.

But managerial accounting is a must for any organization whether it’s small or large, which provides valid data to key people responsible of its day-to-day operations otherwise termed as managers who are inside the company.

Practice of managerial accounting has gone through a terrific change from olden days when it was just an analysis of standard cost and budgeted costs with the revenues during a period of time. In 80’s and 90’s the managerial accounting included “activity based costing”, which is nothing but every activity done is consolidated to know the cost, unlike in prior days where the raw material and labor were cost parameters for accounting.

Along with activity based accounting a method called “balanced scored” which clarifies the financial measures and the criterias for performance were given as goals, literally every goal is made as measure to achieve the expected performance. This involved almost everyone in an organization and the managers were able to set short term goals to achieve a long term goal.

Managers were unable to predict exactly where the loss occurred using the traditional accounting, only the total loss incurred was known. Now with activity based accounting and a new type of accounting “bottle neck accounting”, can find out the areas or departments whichwere the major cause for loss or bottlenecks. A manager can clearly know all the bottlenecks and the one whichhas to be handled first.

Source : Managerial or Cost Accounting. Saranya. April 10, 2013. http://www.articlesbase.com/finance-articles/managerial-or-cost-accounting-1511611.html