Managerial Accounting Principles

Managerial Accounting Concepts and Principles

Accounting is defined as the comprehensive and systematic recording of financial transactions relating to a business. Accounting can also be refers to as the process of summarizing, analyzing and reporting these transactions. Accounting is one of the key purposes for almost any business; it may be handled by an accountant and a bookkeeper at small firms or by large finance departments with dozens of personnel at larger companies. Accounting is made up of numerous field areas that might be defined in a variety of ways. Generally, there are three wide-ranging areas of accounting that include; management accounting and governmental accounting public accounting. These field areas are indicated in Diag

Managerial accounting is as a branch under management accounting. Management accounting is the comprehensive part of accounting and includes tax accounting, financial accounting, managerial accounting and internal auditing. Managerial accounting covers producing information for core users with all levels of management and others surrounded by the organization. Some of the same information is reported that appears in the external financial statements, but normally, the facts provided to internal users is in more detail, provided more frequently, and in numerously different forms depending on how the information is to be used. A key difference between financial accounting and managerial accounting is that financial accounting is directly controlled or guided by GAAP while managerial accounting reports are not directly controlled by GAAP. The diagram below (Diag 2.0) shows the components of Management

Direct costs: Direct costs can be directly traced to the product. Material and labor costs are good examples. (John Wiley & Sons)

II. Indirect costs: These can’t be directly traced to the product; instead, these costs are allocated, based on some level of activity. For example, overhead costs are considered indirect costs. (John Wiley & Sons)

III. Fixed costs: Fixed costs don’t vary with the level of production. A good example is a lease on a building. (John Wiley & Sons)

IV. Variable costs: Unlike fixed costs, variable costs change with the level of production. For example, material used in production is a variable cost. (John Wiley &