Question

Please list at least 5 major differences between Managerial and Financial Accounting. Include in your discussion who the important players are in each, who is using the information, and what type of information is everyone focused on. Please explain why each type of accounting (managerial and financial) plays an important role in the organization.

Answer 1

Both managerial accounting and financial accounting are centered around numbers, but how those numbers are used varies greatly in these two types of accounting methods.

Managerial Accounting	Financial Accounting
Used internally	Used internally
Looks ahead	Looks at historical performance
Looks at operational and financial data	Only looks at financial data
Focuses on specific management needs	Reports on the entire company
Managers can choose the information they need	Information is provided based on outside regulators

The users of managerial accounting are managers, engaged employees, lenders and investors.Users of Financial AccountsI. Users of Financial Accounting are nvestors. Investors are concerned about risk and return in relation to their investments. ...Lenders. ...Creditors. ...Customers & Debtors. ...Employees. ...Government. ...Analysts. ...General public

:-The financial accounts provide a wealth of information that is useful to various users of financial information.

Investors

Investors are concerned about risk and return in relation to their investments. They require information to decide whether they should continue to invest in a business. They also need to be able to assess whether a business will be able to pay dividends, and to measure the performance of the business' management overall

Lenders

Banks and other financial institutions who lend money to a business require information that helps them determined whether loans and interest will be paid when due

Creditors

Suppliers and trade creditors require information that helps them understand and assess the short-term liquidity of a business. Is the business able to pay short-term debt when it falls due?

Customers & Debtors

Customers and trade debtors require information about the ability of the business to survive and prosper. As customers of the company's products, they have a long-term interest in the company's range of products and services. They may even be dependent on the business for certain products or services

Employees

Employees (and organisations that represent them - e.g. trade unions) require information about the stability and continuing profitability of the business. They are crucially interested in information about employment prospects and the maintenance of pension funding and retirement benefits. They are also likely to interested in the pay and benefits obtained by senior management!

Government

There are many government agencies and departments that are interested in accounting information. For example, the government needs information on business profitability in order to levy and collect Corporation Tax. Various regulatory agencies (e.g. the Competition Commission and the Environment Agency) need information to support decisions about takeovers and grants, for example.

Analysts

Investment analysts are an important user group - specifically for companies quoted on a stock exchange. They require very detailed financial and other information in order to analyse the competitive performance of a business and its sector. Much of this is provided by the detailed accounting disclosures that are required by the London Stock Exchange. However, additional accounting information is usually provided to analysts via formal company briefings and interviews.

General public

Interest groups, formed by various groups of individuals who have a specific interest in the activities and performance of businesses, will also require accounting information.

:-Managers use management accounting to make day-to-day and longer-term strategic decisions. The information provided in managerial accounting reports takes extra work and expense to compile and review, but they save considerable time by providing managers with information that can be difficult to gather empirically.

In a business that practices open-book management, employees also use managerial accounting. By giving staff training in understanding financial statements and access to relevant reports, a business can get workers engaged and interested at the front lines. Employees can track ongoing information about everything from regional sales to materials waste and can monitor changes and improvements in areas where they contribute.

Bankers and investors can also be users of managerial accounting, especially when these reports are provided as background information in a business plan or loan package. Standard financial reports such as income statements and balance sheets are required for most financing applications, and other reports such as store-by-store sales figures and cost-accounting figures can add context, showing where there is the most potential for growth and profitability