After months of work, you find yourself on your long-anticipated road trip, cruising down the highway for a relaxing week at the shore. Your goal is to enjoy a quiet week of sand, surfing, and fun. To reach your goal, you need a strategy, which in this case is loading up your car with luggage, tying the surfboards to the roof, filling the tank with fuel, and hitting the gas. But you can’t forget to attend to important details along the way: Drive carefully, don’t speed, follow the directions, and fill up the tank before you run out of gas. Watch for important road signs. Make sure the surfboards stay securely attached to the roof. And out of excitement, try to predict what time you’ll reach your destination. Fulfilling your strategy (that is, actually getting to the shore) requires keeping an eye on a wide range of actors, many of which are critical to reaching your goal.
If you set aside the sand, sun, surf, and relaxation, managerial accounting is actually quite similar to going on a long road trip to the shore. Managerial accounting is the collecting and monitoring of information about a venture to make sure that it’s on its way to successfully meeting its goals.
Managerial accounting plays a critical role in running a business because it provides valuable information about the business to help managers make educated decisions. The process of gathering information involves
- Analyzing costs to understand how they behave and how they will respond to different activities
- Planning and budgeting for the future
- Evaluating and controlling operations by comparing plans and budgets to actual results
After gathering information, managerial accountants then report the facts and figures to the company’s managers, who need this information to run the business.
Managerial accountants carefully collect information about a company’s costs in order to understand how costs behave. What causes costs to
increase? How can the company decrease them? Managerial accounting offers many useful tools to help understand what drives costs and how different events affect net income.
After managers set goals and strategies for a company, managerial accountants get to work developing a realistic plan — with numbers, of course — to implement these strategies and ultimately meet their goals. This budgetary process requires coordinating all of a company’s functional areas, predicting sales, scheduling production, setting up purchases, planning staff levels, forecasting expenditures, and projecting cash flows.
Planning is one thing, but execution is another. Managerial accountants are responsible for continuously monitoring performance, evaluating it, and comparing it to the budget. This part of the job is a lot like taking an occasional look at the map when you’re on a road trip to make sure you’re on the right highway and going in the right direction.