What is management Accounting
Management Accounting or Managerial Accounting, one of the types of accounting, which is concerned with provisions and use of accounting and financial information to managers within organizations. It helps them analyze their position on the set strategic goals already set and the future goals that should be set.
Compared to financial accounting information, Management Accounting information is basically prepared for the use of just for the managers within the organization as the information is confidential. So it's not shared with stakeholders. Every organization follows these Management Accounting procedures in different formats of reporting but the principles are the same.
Role of a Management Accountant:
Like other roles in corporations, Management Accountants have a dual reporting relationship concept. Given their role in strategic decision making for the organization, the management accountant is also responsible for handling the various business teams and coordinating the performance reports to the finance section of the organisation
The activities of a management accountant include forecasting and planning, performing variance analysis, monitoring and reviewing costs in the business and operations etc. Some of the activities which are for the purpose of business teams are like new product costing, operations research, business driver metrics are. Preparation of costing reports, risk and regulatory reports etc. are some of the activities which are for the finance wing within the organization.
Basic accounting terms, abbreviations, acronyms, and concepts to remember:
Here are some of the basic accounting terms, which are frequently used for Financial and Management Accounting purposes
1. Accounts receivable (AR)
The amount of money owed by customers or clients to business after goods or services have been delivered and/or used.
2. Accounting (ACCG)
A systematic way of recording the financial transactions and reporting of an organization for the purpose of a business.
3. Accounts payable (AP)
The amount of money a company owes from creditors (suppliers, etc.) in return for goods or services they have delivered to others is called Account payable.
4. Assets (fixed and current)
Current assets are all the assets of a company that are expected to be conveniently sold, consumed, utilized or exhausted through the standard business operations which can lead to their conversion to a cash value over the period of next one year. Fixed assets (FA) are long-term and will likely provide benefits to an organisation for more than one year, such as a real estate, land or major machinery.
5. Asset classes
Asset class is basically a group of securities which have similar financial characteristics and behave similarly in the marketplace. The three main asset classes include equities or stocks, fixed income or bonds, and cash equivalents or money market instruments.
6. Balance sheet (BS)
A Balance sheet is the statement of the assets, liabilities, and capital of a business or organization at a particular point of time. highlights the details of the balance of income and expenditure over the preceding period.
7. Financial Capital (CAP)
Financial capital is any economic resource of organization which is measured in terms of money used by businesses and entrepreneurs to buy what they required to make their products or to provide the related services to the sector of the economy upon which their operation is based.
8. Cash flow (CF)
These are the revenue or expense expected to be generated through business activities (sales, manufacturing, etc. over a period of time. Cash flow is the Incomings and outgoings of cash, representing as the operating activities of a company or organization. In accounting, cash flow is the mainly the difference in the amount of cash available at the beginning of a period (opening balance) and the amount at the end of that period (closing balance).
9. Certified public accountant (CPA)
A designation which is given to an accountant who has passed a mandatory standardized CPA exam and qualifying the government-mandated work experience and educational requirements to become a CPA.
10. Cost of goods sold (COGS)
In Accounting the cost of goods sold (COGS), is also referred to as the cost of sales/services, it ascertains how much it costs to produce your services or products. The COGS mainly includes direct material and direct labour expenses that go for production of each good or service that is being sold. When calculating the cost of goods sold, the cost of creating goods or services that you don’t sell is not included in COGS.
Indirect expenses, like certain overhead costs, are not included in COGS.
11. Credit (CR)
Depending on the transaction the credit is an accounting entry that may either decreases the value of assets or increase liabilities value and equity on the company's balance sheet. When using the double-entry accounting system there will be two recorded entries for every transaction: A credit and a debit.
12. Debit (DR)
Its is an accounting entry where there is either an increase in value assets or a decrease in liabilities on a company's balance sheet.
Diversification is a corporate strategy whereby to enter into a new segment of market or industry in which the present business doesn't currently operate, while also creating a new product for that new segment of the market.
14. An enrolled agent (EA)
Any tax professional who represents on behalf of taxpayers in matters where they are dealing with the Internal Revenue Service (IRS).
15. Expenses (Fixed, variable, accrued, operation):
Fixed expenses: These are those costs which do not fluctuate with changes in production volume or sales level. They include such as rent, insurance, dues and subscriptions, equipment leases, payments on loans etc.
Variable costs: These are costs that change in proportion to the good or service that a business produces. Variable costs are also the sum of marginal costs over all units that are produced in business. They can also be considered as the normal costs. Fixed costs and variable costs make up the two major components of the total cost.
Accrued expense: The Accrued expense is that expense which has been incurred but has not yet been paid. The expense must be recognised in the accounting period in which it is incurred. So, the accrued expense must be recorded in the accounting period in which it occurs rather than in the following period in which it will be paid
Operational expenses The operating expenses are business expenditures not directly associated with the production of goods or services. These are an ongoing cost for running a business, product or system. Its counterpart, the capital expenditure, is the cost of developing or providing non-consumable parts for the product or system. For example, advertising costs, property taxes or insurance expenditures etc. are operation expenses
16. Equity and owner's equity (OE)
Owner’s equity is often called as net assets, it is basically the owner’s claim to company assets after all of the liabilities have been paid off. If the business assets were liquidated to pay off the creditors, the excess money left over would be considered as the owner’s equity.
That is why it is referred to as net assets. In the most general sense, the owner’s equity equals total company assets minus total company liabilities.
A company is insolvent if it does not have sufficient assets to discharge its debts and liabilities. In other words, it is the state where an individual or company can no longer meet financial obligations with the lender(s) when their debts become due.
18. Generally accepted accounting principles (GAAP)
It is the set of rules and guidelines developed by the accounting industry to manage the accounts for companies to follow when reporting financial data. Following all these rules and regulations is especially critical for all publicly traded companies.
19. General ledger (GL)
The general ledger is a record of all the accounts that the company uses. In today’s accounting systems, most of the general ledger is computerized. A general ledger primarily divides accounts into three account types: assets, liabilities, and equity accounts.
20. Trial balance
In a double-entry account book trial balance a statement of all debits and credits, along with any disagreement indicating an error. Trial Balance is a complete list of closing balances of the ledger accounts on a particular certain date and it is the first step towards preparing the financial statements. Usually, it is prepared at the end of an accounting period to help in the drafting of financial statements.
21. Current and long term liabilities
Current liabilities: These are those liabilities that are payable within a year period of time, such as a debt to suppliers.
Long-term liabilities are typically those liabilities which payable over a period of time greater than one year. An example of a long-term liability is like a multi-year mortgage for office space.
On the basis of recording in the books amount of the business, the Current Liability is recorded in the balance sheet in the order of their due dates. The long-term liability is written in separate formal documents that have important details such as principal amount, interest, and due date.
22. Limited liability company (LLC)
Its a separate distinct legal entity and corporate structure where members cannot be held accountable for the company’s debts or liabilities. This can protect the business owners from losing their own savings if, for example, someone were to sue the company.
23. Net income (NI)
A company's total earnings also called net profit.,it is calculated by subtracting total expenses from total revenues.To calculate the net income of a business, take the company's total revenue. From this, subtract the business's expenses and operating costs to calculate the business's total earnings before tax. From it deduct the tax from to find the business's net income.
24. Present value (PV)
Present value, also known as discounted value, is a financial calculation that measures the worth of a future amount of money or stream of payments in today’s dollars adjusted for interest and inflation. In other words, it compares the buying power of one future dollar to purchasing power of one today.
25. Profit and loss statement (P&L)
A financial statement that is used to summarize a company’s performance and financial position by reviewing revenues, costs and expenses during a specific period of time, such as quarterly or annually.
26. Return on investment (ROI)
A measure used to evaluate the financial performance relative to the amount of money that was invested. The ROI is calculated by dividing the net profit by the cost of the investment. The result is often expressed as a percentage. See an example here.
27. Individual retirement account (IRA, Roth IRA)
IRAs are savings vehicles for retirement. A traditional IRA allows individuals to direct pre-tax dollars toward investments that can grow tax-deferred, meaning no capital gains or dividend income is taxed until it is withdrawn, and, in most cases, it’s tax deductible. Roth IRAs are not tax-deductible; however, eligible distributions are tax-free, so as the money grows, it is not subject to taxes upon with-drawls.
28. 401K & Roth 401K
A 401K is a savings vehicle that allows an employee to defer some of their compensation into an investment-based retirement account. The deferred money is usually not subject to tax until it is withdrawn; however, an employee with a Roth 401K can make contributions after taxes. Additionally, some employers chose to match the contributions made by their employees up to a certain percentage.
29. Subchapter S corporation (S-CORP)
A form of corporation (that meets specific IRS requirements) and has the benefit of being taxed as a partnership versus being subject to the “double taxation” of dividends with public companies.
30. Bonds and coupons (B&C)
A bond is a form of debt investment and is considered fixed income security. An investor, whether an individual, company, municipality or government, loans money to an entity with the promise of receiving their money back plus interest. The “coupon” is the annual interest rate paid on a bond.
*NOTE : "This study material is collected from multiple sources to make a quick refresh course available to students."