Accountants play a pivotal role in improving their organization’s financial and operational performance by helping key decision-makers understand the nuances of ongoing business activities. Using both quantitative and qualitative financial information, accountants create detailed reports and recommendations that guide investments, capital management strategies and organizational goals.
As accountants advance their careers, they often look for new opportunities to leverage their knowledge, skills and experience to greater effect. While being a public accountant might be appealing for some, there are plenty of other careers available to pursue, including in managerial accounting. But what is managerial accounting, and how can aspiring professionals prepare themselves to take on this role?
Managerial Accounting: Definition
Managerial accounting is the process of “identification, measurement, analysis, and interpretation of accounting information” that helps business leaders make sound financial decisions and efficiently manage their daily operations, according to the Corporate Finance Institute. Unlike other branches of accounting, this role is focused on internal data gathering and reporting, meaning professionals do not typically work with or advise external clients. Instead, managerial accountants focus on understanding their company’s cash flows, financial transactions, operating costs and internal rate of return. Once collected and analyzed, this accounting information is translated into reports and presentations that inform budgeting decisions and future investments.
Since managerial accountants generally aren’t responsible for external reporting (though they may be called upon to do it at times), they can make use of analysis and reporting techniques that fall outside traditional accounting standards, such as the generally accepted accounting principles (GAAP). This allows them to tailor their findings in ways that meet different end-user needs without worrying about regulatory compliance.
For example, a managerial accountant may be asked to chart expenditures in a graph format by one department, and to translate this financial information into percentages by another. Not only does this flexibility enable more granular and actionable financial reporting, it can also help optimize product costing, budgeting and forecasting activities.
Managerial Accountant Job Description
Managerial accountants can work for public or private companies, as well as for government organizations and not-for-profits. While the specific job description of a managerial accountant will vary from one organization to the next, their duties and responsibilities often encompass:
- Preparing financial and transactional data for use within an organization
- Evaluating and managing financial risks
- Analyzing the cost of products or services, and breaking down this information for different cost and/or revenue centers
- Modeling and forecasting cash flows
- Recording and analyzing cost and revenue data to help the company budget properly and perform optimally
- Collaborating with members of the management team to assess the company’s investment opportunities
- Supervising lower-level accountants, including those who perform more basic accounting or tax preparation tasks
Managerial Accounting Examples
Managerial accounting can take different forms, depending on organizational need. Some of the primary examples of managerial accounting include:
- Product costing and valuation. Product costing refers to the calculation of the total cost of producing a good or service. Managerial accountants calculate overhead expenses and other variables to determine the true cost of a product or service, which can provide direction for companies looking to sell or divest.
- Cash flow analysis. Managerial accountants may also be tasked with determining the cash impact of various business decisions. This involves assessment of the cash inflow and cash outflow related to a particular decision, such as purchasing a piece of equipment.
- Break-even analysis. This entails calculating the break-even point for a product or service (the point at which total cost and total revenue are equal). This type of analysis is particularly beneficial when businesses introduce new products or services and can be useful for setting price points on new items.
- Constraint analysis. Managerial accountants may also perform constraint analysis. This entails evaluating hurdles or bottlenecks within sales or production processes; calculating their impact on revenue, profit and cash flow; and seeking ways to make the process more efficient.
Key Managerial Accounting Skills and Techniques
Managerial accountants use a wide variety of technical skills and analysis techniques to create accurate financial statements, forecast future expenses and identify cost-saving opportunities. Using key performance indicators as benchmarks, they conduct in-depth financial investigations into every facet of their company’s operations, from the costs of goods sold to its net present value.
Since every business has different operational needs and financial constraints, no two managerial accounting positions will be completely identical. For example, professionals working for a manufacturing firm may focus on supply chain costs and production expenses, while those in the retail industry are more concerned with inventory valuation. Regardless of their employer, managerial accountants rely on similar skills and techniques, including:
- Margin analysis: Even when internal and external factors are known, companies’ gross margins will fluctuate over time. Margin analysis helps business leaders understand what’s driving profitability and where inefficiencies may be leading to wasted spending. This technique can also provide actionable insights into how small changes in product pricing, production workflows and staffing can influence a business’s overall profitability, according to Investopedia. By analyzing the projected costs and estimated benefits of specific investments, managerial accountants can formulate financial strategies that align with their company’s long-term goals.
- Capital budgeting: Before companies undertake a new investment or project, they first need to ensure that it will deliver profitable results. Managerial accountants use capital budgeting to assess the potential cash inflows and outflows of specific business decisions. For example, if a manufacturer was planning to open a new production facility, they would first need to determine the total cost of the project and the expected ROI. According to Investopedia, common metrics used in capital budgeting include discounted cash flow, net present value and internal rate of return.
- Trend analysis: Forecasting revenue, profits and capital expenditures is a core part of managing a business’s financial operations, which is why managerial accountants keep a close watch on market conditions and cost-related trends. As noted by the CFA Institute, the goal of this accounting technique is to track companies’ historical performance and growth over a specific period of time to help inform future decisions. Without a forward-looking financial management framework, businesses would struggle to adapt to new opportunities and constraints in their market.
Managerial Accountant Salary
Because of their specialized skill set and the value they provide to their organizations, managerial accountants often earn competitive salaries. The median annual salary for managerial accountants was approximately $73,500 as of June 2022, according to data from Payscale.
Several factors can influence an individual’s actual salary:
- Managerial accountants with higher levels of education tend to earn more competitive salaries.
- A greater level of experience can also yield higher earnings.
- Salary ranges may differ according to the geographic area and size of the organization.
Payscale reports that salaries for managerial accounting roles vary widely based on these factors, with a salary range between $46,000 and $105,000 as of June 2022. Aspiring managerial accountants may be able to boost their earnings — and help themselves stand out in the job market — by earning an advanced degree.
Advance Your Accounting Career with a MAcc from the University of Nevada, Reno
If you’re interested in pursuing a managerial accounting career, the online Master of Accountancy program at the University of Nevada, Reno can help you assemble the knowledge, skills and experience you need to excel. The MAcc degree program is designed to both reinforce accounting fundamentals and educate students about complex financial reporting techniques, including cost accounting, margin analysis and capital budgeting.
To learn more, explore the MAcc degree page or contact an enrollment adviser today.
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