From the course: Accounting Foundations

A closer look at managerial accounting

From the course: Accounting Foundations

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A closer look at managerial accounting

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- Managerial accounting is all about communicating to people inside the company. It is the information that is used on a detailed basis every single day inside the company. Managerial accounting, it is secret, it is detailed and it is daily. Let me illustrate the difference between managerial accounting, and financial accounting with this simple example. We'll talk about Walmart again. We saw before that Walmart's sales amount for the year end of January 31st, 2024 was $648 billion. Now $648 billion, that's a financial accounting number. We saw it in their income statement, which is a report made available to people outside the company. Now, let's imagine for a second that you run a Walmart. You're a store manager or a regional manager. That means you're making daily decisions about what needs to happen at Walmart. The financial accountants come and say, "Hey, our sales last year were $648 billion." And you say, "Okay, that's nice. Fine. But I'm trying to run a business here. I need to know more details about that $648 billion number. I need that number sliced and diced. I need to know more specifics. I need detail." So let's think. What additional things would you like to know about that one number, $648 billion? Now, we could list hundreds of additional things, but here are just a few. In addition to knowing that total worldwide sales are $648 billion, I would want to know how many of those sales were in North America, in Mexico, in South America, in Europe, Asia, in Africa. In fact, I want to know sales by store, and I don't want to just know it by store. I want to know how much we did it last year in that same store, and what was our target for this year in that store? Now, let's go down even further. I want know sales by department. Are we selling mostly groceries? Are we selling mostly children's clothing, men's clothing, outdoor lawn care products? In fact, let's go to specific items. How much milk did we sell? How many bananas did we sell? How many lawnmowers did we sell? I want to drill down to as much detail as possible because I'm running a business here. I want to identify my best selling products, and my worst selling products. I want to know how much is sold by seasons, What's sold in January? What's sold during the holiday season? In fact, I want to go a little bit deeper than that. How about day of the week? What happened on Monday, Tuesday? What happened by time of day? Should we be open 24 hours? Should we even open before noon? How many people pay cash? How many use various credit cards? Should we have our own credit card? Should we even accept cash? I want sales broken down by the demographics of the buyer. I can use this specific information to target specific buyers with specific deals, special coupons and so forth. If I'm a Walmart manager, I need to know details that I can use on a daily basis to run my business. That's managerial accounting. Inside, secret daily, detailed.

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