- Managerial accounting is all about
communicating to people inside the company.
It's the information that is used on a detail basis,
every single day inside the company.
Managerial accounting, it's secret,
it's detailed, and it's 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 ended January 31st 2018 was $495 billion.
Now, 495 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 Walmart.
You are a store manager or a regional manager.
That means you're making daily decisions about
what needs to happen at Walmart.
So the financial accountants come and say,
hey, our sales last year were $495 billion,
and you say, okay, that's nice,
thanks, but I'm trying to run a business here.
I need to know more details about that number, 495 billion.
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, $495 billion in sales?
Well, we could list hundreds
of additional things but here are a few.
In addition to knowing that total worldwide sales
are $495 billion, I would want to know how many
of those sales were in North America,
in Mexico, in South America, in Europe, in 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 did we have last year
in that same store, and what
was our target for this year for that store?
Now let's go down even further.
I want to know sales by department.
Are we selling mostly groceries?
Are we selling mostly children's clothing?
Men's clothing?
Outdoor lawn care products?
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 are sold by seasons.
What sold in January?
What sold during the holiday selling season?
In fact, I want to go a little bit deeper,
how about day of the week?
What happened on Mondays, Tuesdays, Wednesdays?
By time of day, should we be open 24 hours,
should we even open before noon?
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.
So the financial accounting number is $495 billion in sales,
that's a nice number to report to outsiders.
But if I'm a Walmart manager,
I need to know details that I can use on
a daily basis to run the business.
That's managerial accounting.
Inside, secret, daily detail.