Managerial accounting

Managerial accounting is a branch of accounting that focuses on providing decision-makers with comprehensive financial and non-financial, actual and budgeted information about the entire company or holding, as well as its various business units, cost centres, projects, products and services.

In AB Report, managerial accounting accompanies financial accounting and extends it for the needs of more detailed analysis and support for actual/budget comparability. The software already complements traditional financial accounting with advanced analytics and real-time accounting. Managerial Accounting provides a number of additional tools.

Non-financial data

AB Report supports the manual collection (or import) of non-financial metrics for use in reports or cost calculations, as described in the section Tracking non-financial metrics.

Cost Center Accounting

Cost Center Accounting is used to track and manage the budgets, costs, and revenues associated with different legal entities, departments, teams, or functional areas within an organization.

Identification of cost centers. Cost centers are identified within a hierarchical structure that enables the aggregation of revenues, expenses, and budgets at the individual cost center level. This structure also facilitates cumulative totals for higher hierarchies.

Budgeting and Planning. The software allows the creation of separate budgets tailored to specific cost centers. This granularity in budgeting supports a more detailed and focused approach by breaking down the budget process into distinct sub-processes.

Cost and revenue allocation by cost center. Cost center is one of the business dimensions used to tag business transactions for analysis and reporting. Costs and revenues can be directly assigned to a specific cost center (or multiple cost centers) by specifying the cost center in the source document. Activity-based costing methods can be used for more refined reallocation of metrics between cost centers.

Performance Analysis and Internal Reporting Cost centers can be used in all reports to analyse and report on both actual and budget metrics.

Cost Accounting

AB Report helps to track and analyse various costs associated with production, operations and other activities. It allows you to allocate costs to products, projects, cost centers or segments, helping with cost control, decision making and actual/budget comparisons.

The primary method used is Direct Costing. In real-time accounting just some direct costs can be associated with production (manufactured or in trade sells). These costs are direct materials, transportation costs and direct labor. All other costs are treated as period costs (indirect costs).

The second method is Activity-Based Costing (ABC), which allows indirect costs to be allocated or reallocated to cost centers, segments, projects or products based on activities (cost drivers). In AB Report, any non-financial metric can be used as a cost driver for activity-based costing. This method is performed as part of the period-end closing process.

Manufacturing companies calculate their total costs in terms of the cost of producing each item. This is called Absorption Costing or Full Costing. To allocate indirect costs to a particular product, the ABC method can be used, or the physical unit method, which allocates indirect costs in proportion to the physical unit of each product. This method is available in the period-end closing process for financial accounting. For manufacturing companies, it is advisable to keep financial and management accounting separate in order to have access to cost information before and after allocation.

Project Accounting

Project accounting is a specialised form of accounting that tracks the financial progress of specific projects. It involves budgeting, monitoring and reporting on the revenues, costs, assets, and liabilities associated with a particular project, providing insights into its financial and non-financial performance and helping with decision-making.

During the budgeting stage, each project is assigned its own budget, complete with its own financial statements such as balance sheet, profit and loss and cash flow. AB Report proposes a number of separate accounting methods to track actual project transactions, facilitating accurate comparisons between actual and budgeted figures.

In its simplest form, transactions can be directly assigned to a specific project by specifying the project in the source document. In practice, however, companies often carry out transactions that affect several projects at the same time, such as the procurement of materials or services. In such cases, more complex methods are used.

Revenue is usually allocated directly to the project. All costs associated with multiple projects are consolidated into a cost center or project and then allocated to specific projects using Activity Based Costing. Materials can be held in stock and charged to the project as they are used.

To ensure accurate cash flow reporting and to maintain accurate balance sheet accounts for individual projects, a series of corrective transactions are essential. These transactions are reverse postings that exclude account entries from one project and include them in another. These adjustments can be supplemented by period-end closing procedures.

In addition, specific accounting policy settings are offered for project accounting. These settings involve the configuration of operations that are triggered at document entry, recording transactions that negatively affect asset and liability accounts within the project context. This includes, for example, writing off materials from one project's inventory for another project's expenses, or settling accounts payable issued for another project. Users have the flexibility to configure posting templates for such transactions.

Next: Planning and Budgeting