Managerial Accounting Vs Financial Accounting

Managerial and Financial Accounting

ACCT/300: Principles of Accounting

April 9, 2008

Managerial and Financial Accounting

This paper will attempt to differentiate between managerial and financial accounting, the users of managerial and financial accounting and what type of business decisions would be made with the information.

Managerial Accounting

Managerial accounting provides accounting information to managers who are inside an organization and who directs and controls its operations, to help them make decisions to manage the business. For example, it provides information on the costs of an organization’s products and services, which managers can use products cost to guide the setting of selling prices, and use services cost to make inventory valuation and income determination. It provides information on the budgets and performance reports. These reports often consist of comparisons of budgets with actual results. It also provides information on revenues of an organization’s products and services, sales back logs, unit quantities and demands on capacity resources, which assist managers in their planning and control activities (Managerial Accounting, 2008).

Financial Accounting

Financial accounting is used to prepare accounting information for people outside the organization or not involved in the day to day running of the company. The primary objectives of financial accounting are to provide information that is useful in making investment and credit decisions; in assessing the amount, timing, and uncertainty of future cash flows; and in learning about the enterprise's economic resources, claims to resources, and changes in claims to resources. Some of the most important information that financial accounting provides are: it is a means to an end, it is historical in nature, it results from inexact and approximate measures of business activity, and it is based on a general-purpose assumption (McGraw Hill online learning center).

Business Decisions

Financial accounting and managerial accounting both prepare and analyze financial data. However, certain aspects of these two fields are very different. Financial and managerial accounting are both very important aspects of the business world. Most companies have some form of each type of accounting incorporated into their business operations. By following the appropriate standards for each, a company will be able to successfully keep track of their financial standing for internal as well as external purposes.

Financial accounting involves the preparation of a business's financial statements, mainly for External users outside the business. These reports are primarily used by owners, potential owners of a business, and by people who have loaned money to a company. They analyze this information in conjunction with general economic information, such as information about the industry in which the company operates. External users focus on broad information that reveals the overall performance of the company as a whole. In addition, financial accounting only reports information on financial transactions that have occurred in the past. Stockholders, suppliers, and banks also benefit from