Both financial and managerial accounting are two major branches of accounting. One ofthe main similarities between the two is the fact that they are concerned with economic andbusiness events. Both financial and managerial accounting are concerned with economic andbusiness events that play a central role in any business. Another similarity stems from the factthat they […]
To start, you canBoth financial and managerial accounting are two major branches of accounting. One of
the main similarities between the two is the fact that they are concerned with economic and
business events. Both financial and managerial accounting are concerned with economic and
business events that play a central role in any business. Another similarity stems from the fact
that they try to analyze and quantify business activities and transactions (Weygandt, Kimmel,
& Kieso, 2009). The two branches of accounting deal with financial statements, revenues,
cash flows and liabilities. The goal of both financial and managerial accounting is to provide
information to users. Financial accounting provides information to all stakeholders, including
investors and creditors. Managerial accounting seeks to provide relevant information to the
management to ensure that better decisions are made and in so doing, ensure that the
company is run appropriately. Both also result in the generation of reports.
Managerial and financial accounting have various differences. One difference relates
to the objectives. Managerial accounting seeks to ensure that useful information for a
company’s internal use is generated. Managerial accounting helps in strategic planning and
ensures that the management sets realistic goals. Managerial accounting also helps in the
optimal use of a company’s resources. On the other hand, financial accounting seeks to
generate information that can be used both internally and externally (Weygandt, Kimmel, &
Kieso, 2009). Financial accounting helps in the evaluation of a firm’s business performance.
The information generated through financial accounting is useful to investors, industry
regulators, and creditors. Another difference stems from the past and present use. Financial
accounting concerns itself with historical information. Financial statements are created for a
defined period of time. On the other hand, managerial accounting creates business forecasts
by relying on historical information. The rules that govern financial accounting differ from
rules that govern managerial accounting. Financial accounting reports are highly regulated.
The preparation of the reports has to follow the laid down procedures. The information is
used by investors, and this means that companies must accurately process the information for
public consumption. In contrast, managerial accounting gives companies a lot of freedom.
Each company can create its own set of rules.
Provide examples of the reports used for financial reporting and how those reports
differ from managerial accounting reports.
Financial reporting reports include the income statement, balance sheet, and statement
of cash flows. Managerial accounting reports include performance reports, inventory cost
reports, and department performance report. Financial reports follow a set standard of
reporting, unlike managerial accounting reports. The reports are mandatory, and this means
that all business entities must create these reports. The reports help examine the financial
standing of the business at a specific point in time. On the other hand, managerial accounting
reports are not mandatory and are only meant for internal use only. They do not have a
mandatory format that has to be followed. The reports also focus on specific departments of
the organization. Instead of focusing on the organization as a whole, managerial accounting
reports help analyze the performance of different segments of the company.
Determine how managers might use accounting information for planning and
controlling purposes.
Management reports play an important role in giving CEOs insights into specific
areas of the business. Strategic decision making in any organization can only be undertaken
through the utilization of financial information (Obaidat, 2007). Managers need to ensure that
they make informed decisions that are based on facts. Accounting information helps
managers to set realistic goals based on current performance. Businesses seek to ensure that
they make profits and achieve certain financial goals. Accounting information ensures that
the management relies on up-to-date information that helps in making decisions (Obaidat,
2007). Accounting information also helps in increasing efficiency in different departments of
the company as well as adhere to financial regulations.
References
Obaidat, A. N. (2007). Accounting Information Qualitative Characteristics Gap: Evidence
from Jordan. International Management Review, 3(2).
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2009). Financial accounting. John Wiley &
Sons.
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