Managerial Versus Financial Accounting

Accounting is the accurate and detailed monitoring of a company's financial statements, which are then summarized, reviewed, and recorded to tax authorities. The aim of this paper is to distinguish between financial and managerial accounting. On the one hand, administrative accounting refers to an accounting field that is used in the study and provision of information on organizational management, frequently for the purposes of planning, decision making, and monitoring. According to the Chartered Institute of Management Accounting, administrative-accounting is advanced by managers in a corporate environment (CIMA). CIMA also defines managerial accounting as the process used in identifying, measuring, accumulating, analyzing, preparing, interpreting, and communicating information used by directors of a company. The purpose of managerial accounting is for planning, evaluating and controlling a business as a means of ensuring there is the correct use of resources. On the other hand, financial accounting is employed in the provision of data to creditors, holders of stock and outside people in an organization. It is also used in assessing the past performances of an organization through the delivery of a scorecard (Needles, Powers, & Crosson, 2013). A real-life example of the contribution of managerial accounting to an organization is where it assists in the advancement and application of cost management systems. This allows a manager to budget and control activities at the functional level, and introduces activities which promote performances (Warren, Reeve, & Duchac, 2013). Additionally, the accounting manager can change the products ordered by a company when they do not match the costs.



Differences between Financial and Managerial Accounting



Financial Accounting



Managerial Accounting

Reports made are about the outcomes of the whole business

Reports are majorly detailed, and they include lines of products, profits, geographic region and customer base

Reports are mainly on the efficiency and profitability of a business

Reports of managerial accounting are particularly on identifying causative factors to problems and the possible solutions to fixing them (Bragg, 2012)

Records should be kept with precision as it is necessary for proving the correctness of financial statements

Often deals with estimations and not verifiable or verified facts. Places more emphasis on non-monetary information such as the satisfaction of customers which is often used in reports.

The main aim is for the development of financial statements that are distributed in and outside the organization

It relies on reports from operations which are circulated in an organization

Has to meet the different standards expected of accounting

It is not a necessity that it meets these accounting standards when combining data used for internal consumption

It does not pay attention to the system which a company uses in making profits, but rather it concentrates on its results

It is used in finding solutions to different issues.

It is also employed in places where the main bases of operations of a company are located.

It focuses on the various ways of improving organizational profits .

It is focused on the financial achievements of business as it is used in providing summaries of the financial transactions of an organization in the past for purposes of planning. This is attributed to the fact that there are constant changes in needs of customers, economic conditions and the levels of competition (Bragg, 2012).

The planning of a manager is dependent on larger estimations, which calls for the need of looking into what could happen in the future

It demands for the issuance of financial statements after the end of a period of accounting

Reports are frequently given because managers value quick and timely messages.

Used in evaluating liabilities and assets properly, and as a result, it is involved with re-evaluations and impairments

It is focused on productivity rather than valuation of assets and liabilities

Individuals trained in this field are those having a Certified Public Accountant designation

People trained in this area are those with a Certified Management Accountant designation

The payments in this area are higher

Have lower payments

Data entered in this field are verifiable and objective, which makes it difficult to approximate sales volumes.

This area deals with relevant information even if it is not valid or accurate. There is also need for flexibility to provide data to managers, which is essential in arriving at important decisions

An additional focus of this field is on giving reports of a company as an entity. Therefore, this does not require the breakdown of costs and revenues by major segments in reports outside a company, which is regarded as a secondary emphasis (Bragg, 2012).

The primary focus is on segments or parts of a company, and they include but are not limited to sales territories, departments and other branches useful to an organization.

It is a necessity that statements made for external users must meet the accepted General Accounting Principles (GAAP). Furthermore, external users need to have assurances on the preparation of reports in line with the standard rules. Accordingly, these shared ground rules have to promote comparability, as a result minimizing misrepresentation and fraud, but these reports are not used in making decisions in an organization.

It is not very much dependent on GAAP because managers have the capacity of developing their own rules relating to form and content of internal reports. Apparently, the only challenge sets in the shape of benefits accrued when this information is used for costs associated with the collection, analysis, and summary of information (Gitman, Juchau, & Flanagan, 2015).

It is mandatory, meaning that it has to be done considering that external parties such as tax authorities and Securities and Exchange Commission(SEC) need periodic statements of finance

It is not mandatory. This means it does not have to be done. As a result, a company is allowed much freedom of doing as it desires. Additionally, there are no external agencies or regulatory bodies that assess what has been done or specify what has to be done



Conclusion

From the above comparisons, it is clear that with financial accounting, there is not much freedom as it has regulatory bodies and external agencies that often carry out their assessments. Furthermore, the roles of different agencies have been outlining towards efforts of establishing the main disparities between financial and managerial accounting (Warren et al., 2013). This paper has adequately set the primary functions behind the formation of both types of accounting. Accounting is an important field in the modern corporate world for business as it ensures that there are fast running and accountability of information regarding finances. This is attributed to the fact that accounting provides a comprehensive and systematic way of recording financial transactions of businesses, which are further summarized, analyzed and reported to tax agencies.



References

Bragg, S. (2012). The difference between financial and managerial accounting. Retrieved on July 25, 2017 from: https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=20&ved=0ahUKEwjujbyloajVAhWLchQKHS4_B68QFgiJATAT&url=https%3A%2F%2Fwww.accountingtools.com%2Farticles%2Fwhat-is-the-difference-between-financial-and-managerial-acco.html&usg=AFQjCNHY2rEbf7_Z2H_ZK8Fljk80mM3gbA

Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. Pearson Higher Education AU.

Needles, B., Powers, M., & Crosson, S. (2013). Financial and managerial accounting. Nelson Education.

Warren, C. S., Reeve, J. M., & Duchac, J. (2013). Financial & managerial accounting. Cengage Learning.