• Wednesday August 12,2020

Administrative Accounting

We explain what administrative accounting is, its objectives, its importance for a company and other characteristics.

Management uses administrative accounting to analyze the company.
  1. What is administrative accounting?

It is called administrative accounting or managerial accounting to a branch of the accounting firm dedicated to the administration of companies and organizations . Its function is to supply the same accounting information conducive to 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 about the administrative performance of the organization, which will allow administrators or managers to know how near their objectives are and apply control tools or dynamics.

Beginning in the 1960s, 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.

It can serve you: Financial planning

  1. Features

Administrative accounting is interested, in its reports, by 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 for the consumption of the company's management.

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.

  1. 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.

  1. 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.

  1. 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.

Continue with: Financial Accounting

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