Accounting Management – What is it? How does it work?

The accounting that we usually talk about is financial accounting that is configured to produce accounting information (the annual accounts with its income statement, balance sheet, and other documents) whose purpose is to give a faithful image of the activity and situation of the company before third parties: before the Tax Administration, before current or future investors, before creditors, etc.

But the information that accounting provides is not only used for external control of the business, it can also provide very useful information for the decisions of the business itself.

Accounting management is the development and use of this accounting information to guide in making all kinds of business decisions at different levels of decision.

In addition, with the so-called cost accounting or analytics, we can also obtain this information separately in different sections, products, or geographical areas of the business, thus determining the results so that they are more useful when providing data for taking decisions.

Accounting management

Accounting management is the activity aimed at obtaining information on the financial operations of the company.

This information, to be useful, must be consistent, orderly, and methodical. For its preparation, we must have experienced accounting professionals.

The reason for preparing this type of study is to provide information to the planning and design of strategies, both economic and accounting, as well as to anticipate situations that will occur in the future before they occur.

With it, the top management of the company has a magnificent instrument to deal with business problems.

Accounting management is carried out in three stages.

First stage: registration of economic activity

Actually, it is something that we are already doing when we take care of our financial accounting: keep up to date the information on all the transactions with the economic value of the business: purchases, sales, salaries, payments, collections, financial operations, etc.

Second stage: classify the information

With the information provided by the record of the previous point, the next step is to sort and classify it with specific data, compared and related to each other. We must define which are the sections with which we are going to work: expenses and income, payments and collections, suppliers and customers, costs and expenses, types of products, etc.

All this processed information is usually quite extensive (we have a large amount of data) and, in order to work with it, this order and classification will be necessary.

It is important not to lose sight of the fact that the meaning of this is to obtain data that leads us to decide in the most correct way, that should be the design criteria.

In the previous step, the accounting record, we should bear in mind that we are going to continue with this second step to facilitate, in the type of record that we keep, these operations.

Third stage: summary of the information

The last step is the preparation of a written report where the results obtained by the two previous steps are summarized in an understandable way and as accurate and detailed as possible.

For this, we will summarize the data using explanations, examples, graphs, or tables.

The addressee of this report is the management of the company that will use it in its decision-making and strategy design.

Objectives of accounting management

With this information, we have greater control of the commercial and financial realities of the company to make better use of the economic resources available and increase the productivity of these resources.

In a more concrete sense, we achieve:

Predict the cash flow both in money and in assets that, together, are the assets of the company.

Support the management of the company with information that will be basic in its activity planning, organization, and strategic decision-making.

Use it in decisions related to financial investments and the use of foreign capital as well as giving us great control over the financial operations of the company and its results.

Help, along with other parameters such as the market, to set the prices of our products or services.

Analyze our income statement knowing, in a much more reliable way, why and how we have reached these profit or loss results and adopting the necessary and pertinent measures.

However, the information provided by accounting management is not only useful for the top management of the company, other parts of the company, and other external, commercial, legal, and financial stakeholders, they also have an interest in the movements and evolution of the operations of the company.

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