Financial Accounting vs. Managerial Accounting

Financial accounting is mainly concerned with the financial statements that are given to the stockholders, lenders, financial analysts as well as other important factions outside the company. The accounting principles come hand in hand with financial accounting since they are used in reporting the results of the corporation's past transactions. These transactions are reported on balance sheets, the statement of changes, the statement of cash flow, and the income statement. Financial accounting is mainly used as a representation of the financial health of an organization to the stakeholders. The audience of financial accounting includes board of directors, financial institutions, and the stakeholders. The financial accounting presents a specific period in the history of the organization. The information helps the audience to review the performance of the company (Needles, Powers, & Crosson, 2013).

In contrast, managerial accounting focuses on the provision of information inside the company to ensure that the management can operate effectively. Management accounting is mainly used by managers in the making of the day to day decisions that affect operations of business. Therefore, management accounting is based on current and future trends and not on past performances. No exact numbers are involved in management accounting, as the management has to make decisions in a short period as the environment keeps on fluctuating. The implication is that the management accounting relies on forecasting of markets and the trends in the environment (Needles, Powers, & Crosson, 2013).

One of the differences is aggregation with financial accounting reporting on an entire business with the managerial accounting being more detailed as it provides information on the profits via products, the product line, specific geographic region and customer information. The other difference is efficiency with financial accounting being more efficient based on the reporting type done. On the other hand, managerial accounting reports on some of the problems that the company is facing and ways of fixing it. The other difference comes regarding proven information. Financial accounting uses a considerable precision to provide a clear image of the company. Managerial accounting is concerned with operational reports and is only distributed within the company (Needles, Powers, & Crosson, 2013).

Standards may also be one of the differences that occur when it comes to the two types of accounting. Financial accounting has to comply with the set standards in accounting. This is different when it comes to managerial accounting as the information provided does not have to comply with any standards as it is used internally. The other specific difference is the systems issue where financial accounting pays no attention to the overall system used by the company in generating profits (Needles, Powers, & Crosson, 2013). It is only the outcome of the company that is considered important. Managerial accounting takes into considerations all the operations and how the company can make improvements in those sectors. The major difference relates to the period. Financial accounting is based on results that have already been attained by the company in the past whereas managerial accounting is based on budgets and forecasts of the company. Financial accounting is done or presented at the end of an accounting period, which is usually one year or six months depending on the company. Managerial accounting can be done more often or frequently based on the urgency of the reports to the decisions made by the managers. Managers require regular managerial accounting reports to ensure that improvements or changes are made to the processes as fast as possible to produce the needed results. Financial accounting takes into consideration the proper valuation of assets and liabilities. This is not a point of focus in managerial accounting as the only focus is the productivity of the company (Needles, Powers, & Crosson, 2013).

References

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