Question

Imagine if you were cost accountant of the company. How would you prepare your income statement and how it would be different in managerial accounting from financial accounting.

Answer 1

Financial accounting has the main focus on the financial statements that are distributed among the lenders, stockholders, financial analysts, and others outside of an organisation; on contrary managerial accounting has the main focus on giving the information within the organisation so that its management can operate it more effectively and efficiently. Financial accounting must be precise and adhere to Generally Accepted Accounting Principles (GAAP), however there are more of a estimate or a guess in the management accounting.

Financial accounting sends the financial reports, also termed as the income statements or balance sheets, to external entities such as tax professionals, lenders, Internal Revenue Service (IRS), and stockholders. The numbers are not the past estimates or future projections, instead are objective fact that are audited by independent, third-party auditors. Although the managerial accounting puts out profit and loss statements, operating budgets, job costing reports; however the financial accounting delivers numbers only for those on the outside who require it to fix the market evaluation of the company. Managerial accounting primary concern is on the problems and solutions within a company while financial accounting focuses on the profitability. Managerial accountants provide the internal operational reports, and the financial accountants provide the financial statements.