Administrative accounting is the accounting division that, based on technically correct internal reports, provides information to the administration so that it, through its planning, direction, organization and control functions, make the strategic decisions that the organization requires for achieve their goals. This accounting has only one basis: the usefulness of your information. It is also called managerial accounting or management accounting and, together with financial accounting and cost accounting, it forms what is known as the accounting structure of the organization.
The concept of management accounting
The following are some definitions that allow for a broad concept of what management accounting is:
Administrative accounting is defined as the accounting information generated in a company expressed both in monetary and non-monetary terms, for decision-making in the administration of an economic entity. (Robles and Alcerreca, p.178)
Administrative accounting is the branch of accounting that generates information for the managers of an organization. It consists of the process of identifying, measuring, accumulating, analyzing, preparing, interpreting and communicating the information that helps them meet organizational objectives. (Horngren, Sundem, and Stratton, p.5)
Administrative accounting is an information system at the service of the administration's needs, with a pragmatic orientation aimed at facilitating the planning, control and decision-making functions. This branch is the one that, with its different technologies, allows the company to achieve a competitive advantage, in such a way that it achieves leadership in costs and a clear differentiation that distinguishes it from other companies. The analysis of all its activities, as well as the links that unite them, makes it easier to detect areas of opportunity to achieve a strategy that ensures success. (Ramírez, p.11)
In the business world, people began to talk about management accounting in 1960., not as a tool for the analysis of production costs, but as an instrument in decision-making by the different management levels. The interpretation and analysis of accounting reports not only belongs to the domain of the internal people of the organization, but also externally to a creditor, a supplier, a potential investor. Regardless of interest, any reader of financial statements should understand that accounting information is based on estimates rather than exact measurements. The analysis and interpretation of financial statements can be based on the use of techniques such as financial ratios, standardization of financial statements, and the development of cash flows. (Sinisterra and Polanco, p.3)
characteristics
According to Warren, Reeve, and Fess (p.2), management accounting information includes historical and estimated data that are used by management to carry out day-to-day operations, plan future operations, and develop overall business strategies. The characteristics of management accounting are influenced by the varying needs of management:
- First, the reports generated by management accounting provide both objective measures of past operations and subjective estimates of future decisions. The use of subjective estimates in management accounting reports helps management respond to business opportunities. Second, management reports do not need to be prepared in accordance with generally accepted accounting principles. Since only management uses the information from management accounting, the accountant can supply the information according to the needs of management.Third, reports from management accounting can be provided periodically, as with financial accounting, or at any time in that management needs information. For example,If senior management wishes to make a decision about a geographic expansion, a management accounting report can be developed, in a certain format and within a certain time frame, to assist management in that decision. Finally, management accounting reports They can be prepared to report information for the entire economic entity or a segment thereof, such as a division, product, project or territory.as a division, product, project or territory.as a division, product, project or territory.
Horngren, Sundem and Stratton (p.6) summarize the characteristics in the following table:
| Main Users | Organizational administrators at different levels |
| Freedom to choose accounting measures | There is no restriction other than costs in relation to benefits to make the best administrative decisions |
| Implications of performance measurement when selecting accounting measures | The choice must consider how the measurements and reports will influence the daily behavior of managers |
| Time focus | Future orientation: formal use of budgets as well as historical records. Example: 2002 budget versus 2002 actual performance |
| Time horizon | Flexible, varies from one hour to 10 to 15 years |
| Types of reports | Detailed reports: Include details about the parts of the entity. products. departments. territories, etc. |
| Description of activities | The field of action is less clearly defined. Greater use of economics. decision and behavior |
goals
Ramírez (p.18) suggests the following:
- Provide information for the costing of services, products and other aspects of interest to the administration Encourage administrators to carry out both tactical or short-term, as well as long-term or strategic planning, which in this competitive environment is increasingly Complex. Facilitate the decision-making process by generating reports with relevant information. Allow to carry out administrative control as an excellent feedback tool for the different managers of the areas of a company. This implies that reports should not be limited to pointing out errors, helping to evaluate the performance of the different managers of the company, motivating managers to achieve company objectives.
In the following video, Professor Víctor Medina makes a brief introduction to the broad subject of administrative accounting, making known its definition, its relationship with financial and cost accounting, its impact on the different areas of the organization and its objectives.
Bibliography
- Horngren, Charles T., Sundem, Gary L. and Stratton William O. Management Accounting, Pearson Education, 2006, p.5 Ramírez Padilla, David Noel. Administrative Accounting, McGraw Hill Intermericana, 2008, p.11 Robles Valdés, Gloria and Alcerreca Joaquín, Carlos. Administration: an interdisciplinary approach. Pearson Education, 2000, p.178 Sinisterra V., Gonzalo y Polanco I., Luis E. Contabilidad Administrativa, ECOE Ediciones, 2007, p.3 Warren, Carl S., Reeve, James M. and Fess, Philip E. Contabilidad Administrativa, Cengage Learning Editores, 2005, p.2
