Managerial Accounting: Evolution, Role, and Application at Starbucks

Understanding Managerial Accounting

Managerial Accounting, also known as Management Accounting, is the field of accounting that provides economic and financial information to a business's managers and other internal users. Devised for internal use rather than public consumption, managerial accounting reports are not directly subject to GAAP standards. Managerial Accounting is a younger discipline than traditional Financial Accounting; consequently, its concepts and tools are also young and evolving to adapt to current and future business needs and to best assist management.

As the service sector grows, new industries emerge through scientific discoveries, advances are made in information technologies and communications, and businesses are increasingly challenged to compete in the global marketplace, the information provided through Managerial Accounting has evolved and become increasingly important for making vital business decisions. The most obvious example of Managerial Accounting's evolution and current importance is seen in multinational business. Here, a company is organized into operational units in at least two countries. While multinational business provides opportunities, it also poses significant challenges: the company must deal with external reporting rules, legal systems, and cultural norms for more than one nation; differing tax laws and rates must be accounted for in business decisions; differing monetary systems, fluctuating currency, and rates of exchange must be considered due to their impacts on business operations, goods, and contracts; customer value may be calculated differently in different countries of operation; and cross-functional teams that unite production, operations, marketing, purchasing, design, and quality management require agreement on management decisions and rely heavily on the information provided by managerial accountants.

Key Differences Between Managerial and Financial Accounting

Financial and Managerial Accounting are different in several ways, chiefly based on their functions. First, Financial Accounting is traditional accounting, while Managerial Accounting is relatively young. Secondly, Financial Accounting encompasses external reporting to the public and is therefore subject to GAAP rules, while Managerial Accounting is concerned with providing internal information for managerial decisions and is not subject to GAAP rules.

Third, while Financial Accounting is concerned with cost accounting, Managerial Accounting is concerned with cost accounting, cost management, activity management, and investment management because it ideally helps multidisciplinary teams cutting across an entire business make managerial decisions. Managerial Accounting's ability to identify, measure, analyze, interpret, and communicate information within an organization helps multidisciplinary teams make coordinated and mutually beneficial decisions rather than operate in isolated and perhaps conflicting ways.

Fourth, while both Financial and Managerial Accounting use some of the same data and reveal it in their reports and financial statements, Managerial Accounting reports and statements tend to be more detailed, more frequent, and more varied in format depending on how that information is being used for internal decision-making. Fifth, Financial Accounting is mandatory for publicly traded companies, while Managerial Accounting is voluntarily employed. Sixth, Financial Accounting is "historic" in that it gives past data, while Managerial Accounting is concerned with the future activities of a company.

Though there are a number of differences between the two types of accounting, if the differences had to be reduced to the fewest words, they would be: Financial Accounting = external; Managerial Accounting = internal.