Accounting: Variable and Fixed Costs


Financial accounting and management accounting both enables decision makers through identification and processing of information that is relevant to decision making. The information is communicated to users of financial statements through reports. They provide management with vital measures and strategies of an organization’s performance and the available cost information for the valuation of inventories on the financial statement. Despite the overlap in their functions, financial accounting and management accounting differ in various ways (Hilton, 2006).

Managerial accounting and financial accounting

The core users of information provided in the managerial accounting is individuals inside the entity, whereas financial accounting takes the actual results of management decisions. They are involved in investment, operation, and financial activities that affect the organization, and prepare statements of financial position for external users of financial statements—lenders, stockholders or owners, governmental agencies, and customers. These reports are normally prepared for external users, but the management has always relied on the information in order to evaluate the performance of the company (Larson & Jensen, 2005).

In addition, the format of management accounting reports are flexible, and aims at providing relevant information to the needs of the users. The information provided can either be future-oriented or historical depending on the formal restrictions or guideline stipulated by the management. In contrast, the report provided by the financial accounting focuses on the historical performance and follows the Generally Accepted Accounting Principles (GAAPs) to the latter.

The reports for management accounting information provide verifiable and objective that is expressed in physical measures of time or objects; the information is based on the approximation; as such, it may be subjective. In contrast, the statements that financial accounting provide should be verifiable and objective; the information is measured in monetary value and only reports historical values. The reports of management accounting are often prepared when needed—daily, monthly, quarterly, or even annually (Larson & Jensen, 2005). The balance sheet, on the other hand, is distributed periodically, usually on a quarterly and annual basis.

Needs and users of financial information

The management of an organization is in a situation to acquire information relating to the organization’s needs. For instance, in the case where the management aims at achieving a reliable and realistic production facility center needs to know whether the plant’s revenues are enough to cover its operation costs. In addition, where the manager wants to find out if the monthly payroll is more or less than the budgeted amount, a report can be generated to provide the answer. Management accounting provides internal users with information that facilitates planning and control. The ability to produce management accounting reports is limited by the availability of data involved and cost involved in generation of relevant information (Hilton, 2006).

Role of managerial accounting

Currently, the analysis of managerial accounting has been a vital component in decision making of an organization. It is vital in obtaining the financial plausibility of an organization. Managerial accountants are considered to be among the integral members in an organization. Apart from the role of managerial accountants as passive members in providing information, they play a proactive role in both day-to-day and strategic decisions.

Managerial accountings are not only focused on the provision of financial information, but also presentation of nonfinancial data. Managerial accountants provides information to the organization’s management team, and operate as a strategic business partners in support of management’s role in decision making and managing the organization’s activities. Contemporary managerial accounting systems are focusing on activities that are felt in all levels of management.

Certified Management Accountant (CMA)

Certified Management Accounting (CMA) is an accounting designation in which the holder has fully acquired expertise in strategic management and financial accounting. It is vital in an organization is it ensures that the practice of accounting standards is followed to the latter. In addition, the certificate not only focuses on financial accounting, but also on management skills. The current trends in the business sector have changed tremendously, and individuals should be equipped with the current strategic, financial, and management skills.


Edwards, D. (2011). Accounting Principles: A Business Perspective, Financial Accounting, Charleston: CreateSpace.

Hilton, R. (2006). Managerial accounting: creating value in a dynamic business environment, London: McGraw-Hill Ryerson, Limited.

Larson, M. & Jensen, T. (2005). Fundamental Accounting Principles, London: McGraw-Hill Ryerson, Limited.

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