Question

Explain how managerial accounting differs from financial accounting and discuss two questions that might be answered using managerial accounting reports.

Support your rationale with examples and provide one academic resource.

Answer 1

The branch of accounting that is concerned with the identification, measurement, analysis, and interpretation of accounting information so that it can be used to help managers to make necessary decisions to efficiently manage a company’s operations is called Managerial accounting (also known as cost accounting or management accounting). On the other hand, that specialized branch of accounting that keeps track of a company's financial transactions is called financial accounting. Using standardized guidelines, the transactions are recorded, summarized, and presented in a financial report or financial statement such as an income statement or a balance sheet. Unlike financial accounting, which is primarily concentrated on the correct organization and reporting of the company’s financial transactions to outsiders (e.g., investors, lenders), managerial accounting is focused on internal decision-making. Managerial accountants need to analyze various events and operational metrics in order to translate data into useful information that can be leveraged by the company’s management in their decision-making process. They aim to provide detailed information regarding the company’s operations by analyzing each individual line of products, operating activity, facility, etc.

Managerial Accounting vs Financial Accounting :

Areas where managerial accounting is used:

1). Planning, Forecasting, and Budgeting:
Managerial accounting includes anticipating and intending to extend the monetary course and financial direction of the organization in the coming months and years. These plans frequently include projections for income as well as additionally costs too. Regularly, this significant level arranging includes making a capital spending plan, which subtleties the expenses of any speculations to be done later on. The financial plan may layout the expenses and projections for new gear buys and acquisitions.

2). Project Management Decisions:
Managerial accounting is utilized to perform cost-benefit analysis for new ventures and give continuous reports to existing activities. These undertakings may include noteworthy costs of money or capital just as new obligation to back them. Therefore, administrative bookkeeping is basic to guaranteeing that these ventures are conveyed inside spending plan and in a convenient way while additionally being gainful.

3). Performance Tracking:
Estimating and following execution utilizing managerial accounting can enable official administration to settle on choices continuously. Estimating execution against the figures and spending plans assists with maintaining a strategic distance from exorbitant overwhelms and permits an organization to stay serious.