Financial Accounting And Managerial Accounting

Accounting is the methodical and full recording of financial transactions relating to a business, and it also denotes to the procedure of briefing, examining and evaluating these transactions to cross checking agencies and tax collection agencies. Accounting is one of the key purposes for nearly any company. It may be done by an auditor and accountant at small businesses or by substantial finance subdivisions with lots of employee’s at

cognizant of the fact that the choices he makes can affect the price a buyer pays

“The accounting system generates the information that satisfies two reporting needs that coexist within an organization: financial accounting and managerial accounting” (Schneider, 2012, ch 1.1, para 1). Managerial accounting is the process of preparing reports and accounts required by management to make business decisions for daily, weekly, monthly, and yearly projects. Financial accounting is the branch of accounting that organizes accounting information for presentation to interested parties outside of the organization. Financial accountants produce annual reports for external

Q1. Contrast financial and managerial accounting on the basis of user orientation, purpose of information, level of aggregation, length of time period, orientation toward past or future, conformance to external standards, and emphasis on objective data.

The structure of an organization will affect its financial management. Generally financial accounting is for outside use so they emphasize external reporting; which means they report to third parties such as; Medicare, Medicaid and other government entities and health plan payers. Managerial accounting is considered to be prospective as well as retrospective. It is of the upmost importance that the accountant must follow the guidelines principles and ethical standards of planning, controlling, organizing and directing, and decision making if they want to be successful at their job.

Managerial Accounting reports are primarily used by supervisors, line managers, process owners, as well as executives, to gain a better understanding of the current financial and operational health of the organization. (Internal)

For instance, the concept of cost estimation which assists in estimating future expenditure as the expenditure depends on the cost of the respective activities can be applied in the setting of a budget which is simply an estimate and schedule of all costs required to be assigned to an activity. One can make an estimation of the resources required for an activity by applying the cost estimation techniques. Since there are limiting factors to each activity such as scarcity of resources for activities, the concept of constraints can be applied together with the concept of cost volume profit analysis to ensure that maximum benefits are driven from the scarce resources and the number of activities that are available. This facilitates the allocation of resources that most equitable and profitable. The theory of constraints is also applicable in the process of setting up budgets. In setting up budget one considers the amount of resources that are available and cannot therefore set a budget plan that exceeds the amount of resources that are available. This implies that the budget is constrained by the amount of

Managerial accounting is defined as the process of identifying, measuring, analyzing, understanding and communicating information for companies set goals. This type of accounting is also referred to as cost accounting. There are many differences between managerial and financial accounting. Managerial accounting is mostly aimed at aiding managers within the organization to make decisions, while financial accounting is aimed at providing information to people that are not in the organization.

The primary difference between financial and managerial accounting is that financial accounting is used for external members of the company; they do not control or run the businesses’ operations. An example of external members would be customers and shareholders of the business. On the other hand, managerial accounting is used for internal members in the company such as managers and officers. The internal members use managerial accounting to increase efficiency and effectiveness within their company. According to accounting4management.com, financial accounting and managerial accounting have several differences, but they both depend on the same data.

The focus of Managerial Accounting is to identify, interpret, measure and communicate both information and data relevant to help the organization pursue and achieve its goals. It is also referred to as Cost Accounting and is used to help managers within a company make decisions. It is different than Financial Accounting which is used predominately by outside sources such as; creditors, stockholders, financial institutions, government agencies and perspective employees.

The company has no receiving department, nor receiving report, and for proper separation of duties, the employee responsible for receiving should have been separate from the storeroom personnel clerks.

Generally, the accounting professionals calling in the United States as well as in the whole world seemed to be focused on the readiness and examining of money related articulations. Many people consider Certified Public Accountants (CPAs) and different experts of accounting while saying financial accounting. In any case, in different parts of the world, management accounting order is a division of the accounting field (Sahi and Dua 2012). Management accounting and financial accounting are two distinct callings in such locales. Administration accounting, as a sub control, manages money related and non-monetary data to bolster a scope of administrative choices. Then again, money related accounting focuses on monetary information just to bolster both loan bosses' and financial specialists' choices on capital allotment (Kinney and Raiborn 2008). Management accounting fundamentally concentrates on enhancing business execution yet not guaranteeing that the business complies with the set measures. From this perspective, it is evident that monetary accounting dominates management

As we shall see in later chapters, the ability to predict how costs respond to changes in activity is critical for making decisions, controlling operations, and evaluating performance. Three major classifications of costs were discussed in this chapter—variable, fixed, and mixed. Mixed costs consist of variable and fixed elements and can be expressed in equation form as Y = a + bX, where X is the activity, Y is the cost, a is the fixed cost element, and b is the variable cost per unit of activity.

Regardless of what industry an organization may be a part of, accounting plays a vital role in everyday decision making. Without the field of accounting, companies and organizations would not be nearly as efficient, productive and successful as they are today. Accounting serves many purposes for an organization, whether it is financial or managerial. But, not all forms of accounting are the same. With that being said, to better understand the differences between financial and managerial accounting, it is important to first know their definitions.

Variable cost includes only variable cost in cost of finished goods (product cost) and fixed cost in period cost.