Administrative Accounting: What it is, How it Works, Example

What Is Administrative Accounting?

Administrative accounting handles and reports internal factors and figures that influence decision making, operational control, and managerial planning.

An administrative accountant is usually responsible for accomplishing a company's administrative goal. Tasked with managing and tracking incomings and outgoings, the duties of these professionals may extend to assisting companies with internal operational accounting chores such as payroll, taxes, and management of assets.

How Administrative Accounting Works

Administrative accounting, a subset of managerial accounting, involves a formal methodology for gathering, reporting, and evaluating financial data that deals with management planning and control.

Administrative accounting duties are often carried out by an administrative accountant who is an employee of the company. These individuals are usually in charge of things like bookkeeping, payroll, management of company assets, tax preparation and planning, inventory control and corporate budgeting.

Administrative accountants help businesses manage financial tasks and expenditures. They do so by creating reports. These reports are run on a daily basis, assisting management and administrators to evaluate day-to-day activities and maintain and control operations.

While accountants put together financial statements, administrative accountants handle other functions, such as bookkeeping and budgeting. The position falls somewhere between the human resource department and the finance division. Some key functions might include processing payments, reconciling vendor accounts, processing credit applications for vendors, preparing 1099 forms, and assisting auditors. 

Administrative Accounting vs. Financial Accounting

Administrative accounting focuses on business transactions. Financial accounting, more broadly, is the aggregation of data into financial statements. Financial accounting tends to cover an entire business, while administrative accounting is more focused on details or more granular levels, such as product lines. 

In addition, financial accounting has standards it must comply with, such as Generally Accepted Accounting Principles (GAAP), while administrative accounting does not. Certified Public Accountants (CPA) is a popular designation found in financial accounting. Meanwhile, the Certified Management Accountant (CMA) designation is generally held by those in managerial accounting.

Pay levels are higher for financial accounting professions, too, in part, because there are more training requirements for financial accountants.

Example of Administrative Accounting

Tanya is an administrative accountant at the ABC Company. She’s in charge of payroll, which means making sure the appropriate taxes, defined contribution (DC) plan contributions, and insurance costs are deducted from paychecks and the paychecks are deposited properly into employee accounts. 

Tanya is also the corporate bookkeeper, keeping track of expenses and revenues, and on the budget committee, where she is in charge of designing the yearly budget for each department and making sure the departments get access to their budgeted funds.