Managerial, also called management or cost accounting, focuses internally on information received through financial accounting. Managerial accounting is used for planning, controlling and decision making. Management accountants rely on normal financial statements including the income statement, balance sheet and cash flow statement, but also use other types of accounting reports in analysing company information. These include product cost reports, budgets and performance reports.
Managerial accounting calculates costs of items produced. This is done by taking all raw product costs, overhead, labour and any additional costs into consideration. The totals are divided by amounts of products produced. All of this information is summarised in a cost report. This report allows managers the ability to see the cost prices of goods versus selling prices. It helps managers plan and control profit margins.
One main element of managerial accounting is the preparation of budgets. Budgets are typically created by using prior years' budgets and adjusting to future projections. A company's budget lists all sources of revenues and expenses. A company tries to accomplish its goals and objectives while staying within budgeted amounts. Managers often look into new vendors to use as suppliers of raw materials to save money. They also find ways to increase sales while decreasing expenses.
Managerial accountants use budgets to compare actual expenditures and revenues to budgeted amounts. The differences calculated are analysed when determining new budgets and all information regarding these amounts is listed on a performance report. Performance reports are calculated every year; however, some companies create them monthly or quarterly. These reports help managers plan for future demand in production as well as cost increases.
Other reports are also used and prepared by managerial accountants. Order information reports are used to compare orders placed to orders received. These reports indicate backlog information and if the orders placed were enough needed. These reports also summarise if too many orders of specific products were ordered, therefore forcing the company to sit on unused products not needed at the time. Business situation or opportunity reports are also created, which help managers make decisions regarding current and future business situations.