We explain what administrative accounting is, its objectives, its importance for a company and other characteristics.
What is administrative accounting?
An accounting branch dedicated to the administration of companies and organizations is called administrative accounting or management accounting . Its function is to supply the same accounting information that serves for better management and decision making.
It is a form of accounting focused solely on the usefulness of your information. Together with financial accounting and cost accounting , it constitutes the accounting structure of a company or organization.
This type of accounting is usually internal consumption of the company . Their reports, designed and prepared by the organization’s accountant, contain key information on the administrative performance of the organization, which will allow administrators or managers to know how close to their objectives they are and to apply tools or control dynamics.
From the 1960s onwards, administrative accounting began to gain popularity in the business world, not so much as an instrument of cost analysis , but as a mechanism to contribute to better administrative management.
Administrative accounting is interested in its reports, historical information of the company, performance estimates and other confidential data that serve to reflect the operation of the organization .
This means that it has objective information, such as performance measurements, and other subjective information, such as future projections . The latter is key in decision making and entrepreneurship.
For the same reason, it is not necessary to make the reports of this accounting branch following the strict guidelines of the general accounting, since they are not intended for any external auditing entity, but rather for the company’s own consumption.
In the same way, these reports can be made periodically , to keep watch on the effect of certain measures taken, or sporadically , when requested by the administration . And they can also contemplate the data of the organization as a whole, or of a limited sector of the same, according to the interest of the applicants.
Objectives of administrative accounting
The main objective of administrative accounting is to identify, measure, accumulate, analyze, prepare, interpret and communicate the administrative information that allows the management of the organization to make decisions in a more informed and, therefore, more efficient way .
It is a mechanism of the most important business feedback that management has, and that is why its task is to provide the information necessary to develop a competitive advantage in its niche market.
Importance of administrative accounting
Good administrative accounting translates into more and more faithful information regarding the company’s performance and what can be expected from it in the immediate future, always speaking in accounting terms.
This means that, unlike other forms of accounting, it is not simply a detail of numbers and measurements, but also a predictive tool , which serves to anticipate opportunities and take risks . It is, therefore, a form of accounting designed based on the needs of management itself.
Differences with financial accounting
Financial accounting consists in collecting quantitative information of an economic nature of a company. It differs from the administrative accounting that we have been talking about, in that the first one is intended for people outside the organization but linked to it in one way or another.
On the contrary, administrative accounting is of strict internal consumption. For the same reason, the first is of an objective, strict nature , while the second has a certain subjective nature that helps management to make decisions.