Accounting For Dummies®, 4th Edition

9.1. Helping Managers Do Their Jobs

As previous chapters explain, accounting serves critical functions in a business. A business needs a dependable recordkeeping and bookkeeping system for operating in a smooth and efficient manner. Strong internal accounting controls are needed to minimize errors and fraud. A business must comply with a myriad of tax laws, and it depends on its chief accountant (controller) to make sure that all its tax returns are prepared on time and correctly. A business prepares financial statements that must conform with established accounting standards, which are reported on a regular basis to its creditors and external shareowners. In addition, accounting should help managers in their decision-making, control, and planning. This sub-field of accounting is generally called managerial or management accounting.

This is the first of three chapters devoted to this branch of accounting. In this chapter, I pay particular attention to the internal accounting report to managers that provides essential feedback information needed for controlling current profit performance, and which also serves as the platform for planning future profit performance. I also explain how managers use accounting information for analyzing how they make profit and why profit changes from one period to the next. Chapter 10 concentrates on financial planning and budgeting, and Chapter 11 examines the methods and problems of determining product costs (generally called cost accounting).