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Managerial accounting

March 20, 2018

Tonight I start teaching a managerial accounting MBA course at Fairleigh Dickinson University. [You can call me Professor Mendlowitz]. My opening remarks will be to distinguish managerial accounting from financial and cost accounting and I would like to share this with you here.

Financial accounting
Financial accounting goes back to the Sumerians who created the first human writing about 5500 years ago. Their cuneiform inscriptions kept track of farm production for workers probably paid on a piecework basis. Financial accounting precedes poetry and prose and writing for pleasure or communication – it is the first seed of civilization. The first financial records created history; before then everything was considered prehistoric! Financial accounting records what was. Financial accountants produce or audit the financial statements we eagerly read when they arrive; and the statements follow voluminous rules that must be adhered to under the banner of generally accepted accounting principles and auditing standards.

Cost accounting
The purpose of cost accounting is to provide the right method of measurement so that costs are captured, and then reformulated into usable information by many departments within a company. Cost accounting lets you make better decisions and is used by production workers, schedulers, managers, and the purchasing, inventory control, process improvement, accounting, shipping, sales and many other departments as necessary. And each user will look at the information differently. Cost accounting is a backward looking process and while it is used to determine pricing, budgets and projections, these are implemented and measured by historic costs.

Managerial accounting
Managerial accounting uses financial information to interpret trends so that decisions can be made. While much of the information used is backward looking, the purposes are forward looking. Managerial accountants try to synthesize all the inputs into actionable processes to create greater revenues and profits. Managerial accounting includes budgeting, what if scenarios, performance measurement analyses and charting potential results of resulting changes.

Actually, I taught this course almost 40 years ago, also at FDU, and its purpose then was to teach the future managers and leaders how to generate the reports. Today’s course focuses on the users and the decision support information they will need and will use in today’s dynamic fast changing 24/7 global business environment. It is a forward looking program that I am excited about and looking forward to teaching and sharing my experiences collaborating with managers, leaders and directors and helping to guide them in their decision making process.

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