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RUNNING TITLE: FINANCE AND MANAGERIAL ACCOUNTING

Finance and Managerial Accounting

MIAB03M1B7; MM520

Finance and Accounting Report

This paper will present a high-level overview of the differences between managerial accounting and financial accounting and how each of these methods can be used for decision making. A brief definition of each of the methods will be followed by an explanation of the differences. The final section will discuss how each method can be used in making business decisions. The conclusion will sum up the findings submitted within the context of this paper.

Managerial Accounting Vs Financial Accounting

Financial accounting can be defined as "The activities related to the collection, presentation, and reporting of the financial activities of an entity for the purpose of preparation and presentation of its financial statements. Under Generally Accepted Accounting Principles, these statements consist of the balance sheet, income statement, statement of cash flows" (Wiley, 1995). Managerial accounting concentrates more on activities related to planning future actions. Managerial accounting is defined as "any accounting activities geared to the preparation of information for managers to help them plan and control a company's operations" (Collins Dictionary of Business, 1995). Management accounts are much more detailed than financial accounts and break information down into various subparts such as revenues, costs between different products, factories, or departments (Collins Dictionary of Business, 1995).

Managerial accounting differs from financial accounting in that managerial accounting seeks to analyze information to track financial goals while financial accounting seeks to analyze information in order to report to the public or other parties interested in the financial status of a company. Rules and regulations apply to many financial accounting practices because of laws that compel a certain degree of honesty from the company reporting. Financial and Managerial accounting differences are the equivalent of cooking. In one sense, financial accounting is laden with structure, rules, and regulations. On the other hand, Managerial Accounting consists of guidelines that are built from a foundation of accounting and allows room for creative deviation (Thibault, 1993).

Business Decisions

The goal of financial accounting is to report to investors and potential buyers your financial status. Financial accounting embraces the financing stakeholders: lenders, taxers and shareholders. In cash flow terms, if distributions (interest, tax and dividends) exceed new financing (increased borrowings, rights issues) then the company is a net generator of cash (Allen, 1997). Managerial and financial accounting practices help businesses to view their financial status through different and equally important perspectives. Managerial accounting can allow businesses to make decisions about how to pay off debt, how to increase revenue and how to decrease expense. Financial accounting permits businesses to make decisions about the best time to sell or seek new investors. Both types of accounting allow businesses to make sound cost-effective decisions for the benefit of the company. Financial and Managerial accounting offer different perspectives on the financial success