What is Administrative Accounting?

Administrative accounting involves the collection of performance information and the generation of reports from this information that assist management in running an organization. The reports are used on a daily basis to maintain control over and optimize operations. The reports tend to have quite a granular focus within an organization, so that managers can use the resulting information to make highly-targeted decisions to improve company performance. An example of an administrative accounting report appears in the following exhibit; it shows the main clusters of expenses for a group of retail stores, and notes the margin being earned on each one. Management would use this report to upgrade the practices at individual stores, as well as to decide whether a store location should be closed.

Administrative accounting is a subset of management accounting.

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Examples of Administrative Accounting

Here are several examples of administrative accounting in action:

Budget preparation. Administrative accounting helps create detailed budgets that outline expected revenues and expenditures. These budgets guide departments in their financial decision-making and ensure resources are allocated efficiently. Regular monitoring compares actual performance against the budget, allowing management to take corrective action if needed.
Cost analysis. Managers use administrative accounting to analyze the cost of operations, products, or services. This includes identifying fixed and variable costs and calculating cost per unit. The insights help in making decisions such as pricing, outsourcing, or process improvements.
Performance evaluation reports. Administrative accountants generate performance reports that assess departmental efficiency and employee productivity. These reports often include key performance indicators (KPIs) and trend analyses. Management uses this data to reward high performers and identify areas needing improvement.
Internal financial reporting. Unlike external financial reporting, internal reports are tailored to management’s specific needs and may include forecasts, cash flow analyses, and variance reports. These reports are crucial for day-to-day decision-making and strategic planning. They provide a snapshot of the organization’s financial health in real-time or over specific periods.
Resource allocation and utilization reports. Administrative accounting tracks how effectively an organization uses its assets, such as equipment, labor, and materials. Reports help identify underused resources or inefficiencies in operations. With this information, management can reassign or optimize resources to improve productivity and reduce costs.