Question

In: Accounting

In a page, explain the similarities and differences between financial and managerial accounting.

In a page, explain the similarities and differences between financial and managerial accounting.

Solutions

Expert Solution

A common question is to explain the differences between financial accounting and managerial accounting, since each one involves a distinctly different career path. In general, financial accounting refers to the aggregation of accounting information into financial statements, while managerial accounting refers to the internal processes used to account for business transactions. There are a number of differences between financial and managerial accounting, which fall into the following categories:
Aggregation. Financial accounting reports on the results of an entire business. Managerial accounting almost always reports at a more detailed level, such as profits by product, product line, customer, and geographic region.
Efficiency. Financial accounting reports on the profitability (and therefore the efficiency) of a business, whereas managerial accounting reports on specifically what is causing problems and how to fix them.
Proven information. Financial accounting requires that records be kept with considerable precision, which is needed to prove that the financial statements are correct. Managerial accounting frequently deals with estimates, rather than proven and verifiable facts.
Reporting focus. Financial accounting is oriented toward the creation of financial statements, which are distributed both within and outside of a company. Managerial accounting is more concerned with operational reports, which are only distributed within a company.
Standards. Financial accounting must comply with various accounting standards, whereas managerial accounting does not have to comply with any standards when information is compiled for internal consumption.
Systems. Financial accounting pays no attention to the overall system that a company has for generating a profit, only its outcome. Conversely, managerial accounting is interested in the location of bottleneck operations, and the various ways to enhance profits by resolving bottleneck issues.
Time period. Financial accounting is concerned with the financial results that a business has already achieved, so it has a historical orientation. Managerial accounting may address budgets and forecasts, and so can have a future orientation.
Timing. Financial accounting requires that financial statements be issued following the end of an accounting period. Managerial accounting may issue reports much more frequently, since the information it provides is of most relevance if managers can see it right away.
Valuation. Financial accounting addresses the proper valuation of assets and liabilities, and so is involved with impairments, revaluations, and so forth. Managerial accounting is not concerned with the value of these items, only their productivity.
In Conclusion we can say that:
Financial accounting deals with a history of previous periods, as well as the processing of data in the current period. The accounting cycle is crucial to financial accounting standards and processes, ensuring that data is compiled and reported in a consistent way, so that anyone who's familiar with accounting's general practices can understand. Financial accounting includes no future projections or predictions.
Although financial accounting reports may be useful for future use such as forecasting, the forward view is more definitive of managerial accounting. Once again, the company that has the most accurate "crystal ball" on future market activity has the advantage, underscoring the importance of effective managerial accounting, as well as its potential weaknesses. A company that closely ties itself to inaccurate managerial accounting projections may experience challenges adapting to actual market conditions

Related Solutions

Explain the similarities and differences between financial and managerial accounting, and prepare, use and interpret a...
Explain the similarities and differences between financial and managerial accounting, and prepare, use and interpret a contribution margin income statement using cost, volume, profit and break-even techniques.
Describe the main differences between financial accounting and managerial accounting, and the differences between accrual and...
Describe the main differences between financial accounting and managerial accounting, and the differences between accrual and cash accounting.
Describe the main differences between financial accounting and managerial accounting, and the differences between accrual and...
Describe the main differences between financial accounting and managerial accounting, and the differences between accrual and cash accounting.
Distinguish the similarities and differences in financial accounting from managerial accounting and how is each type...
Distinguish the similarities and differences in financial accounting from managerial accounting and how is each type of accounting used.
How do ethical standards affect financial accounting? What are the ethical similarities and differences between managerial...
How do ethical standards affect financial accounting? What are the ethical similarities and differences between managerial and financial accounting?
What are some of the differences between financial and managerial accounting?
What are some of the differences between financial and managerial accounting?
1A. •Define Financial and Managerial Accounting •Discuss the differences between Financial and Managerial Accounting•Discuss the possible...
1A. •Define Financial and Managerial Accounting •Discuss the differences between Financial and Managerial Accounting•Discuss the possible uses of and benefits of Managerial Accounting information in a specific company, or business type you choose OR in a business you would start yourself• Also include a description of the possible beneficiaries of this type of accounting information, and the difference it could make in the business you choose
1. Explain the differences between managerial and financial accounting, and give examples of the types of...
1. Explain the differences between managerial and financial accounting, and give examples of the types of problems and issues examined by each of these areas of accounting. 2. Describe each of six steps of the accounting cycle. 3. What is the difference between a journal and a ledger? How are journals and ledgers incorporated into the accounting cycle?
Please define accounting and explain the differences between financial accounting and managerial accounting. 500 words (Minimum)
Please define accounting and explain the differences between financial accounting and managerial accounting. 500 words (Minimum)
Explain the major differences between Financial and Managerial accounting? Is one type of accounting more important...
Explain the major differences between Financial and Managerial accounting? Is one type of accounting more important than the other? Explain. For each of the following costs in a rollerblades manufacturing plant, state whether it would be considered: (1) a period cost or a product cost; and (2) if it’s a product cost, then state whether it would be classified as: direct materials, direct labor or manufacturing overhead Example: Salaries of janitors in the factory     Answer: Product cost; mfg overhead a. Wheels...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT