What you will learn to do: define managerial accounting

Accounting is the system of recording and keeping track of financial transactions in a business and summarizing this information in reports. These reports provide information to people who are interested in knowing about the financial aspects of a business. The information guides business managers, investors, and creditors in planning and decision making. In fact, accounting is often referred to as “the language of business” because business people communicate, evaluate performance, and determine value using dollars and amounts generated by the accounting process.

Financial accounting provides financial information primarily for external use. By reporting on the financial activities of the organization, financial accounting generates information needed by investors and creditors.

Most managerial decisions require more detailed information than what is provided by external financial reports. For instance, in their external financial statements, large corporations such as General Electric Company show single amounts on their balance sheets for inventory. However, managers need more detailed information about the cost of each of several hundred products.

Managerial accounting helps managers make good decisions. Managerial accounting provides information about the cost of goods and services, whether a product is profitable, and whether to invest in a new business venture and how to budget. It compares actual performance to planned performance and facilitates many other important decisions critical to the success of organizations.

You can view the transcript for “Introduction to Managerial Accounting” here (opens in new window).

When you are done with this section, you will be able to:

• Define managerial accounting
• Identify business trends that affect managerial accounting
• Compare and contrast managerial and financial accounting

Learning Activities

The learning activities for this section include the following:

• Reading: What is Managerial Accounting?
• Self Check: What is Managerial Accounting?
• Reading: Business Trends
• Self Check: Business Trends
• Reading: Managerial v. Financial Accounting
• Self Check: Managerial v. Financial Accounting