Compare and Contrast Financial and Managerial Accounting
Compare and Contrast Financial and Managerial Accounting
Introduction
In the current world, the environment in which companies operate has become more competitive, and this trend worsens by the day. As such, it has become imperative that firms focus more on advanced and sophisticated means of gathering accounting information for them to react as required towards market dynamics. In this consideration, it is important for these companies to employ proper accounting practices, which might either be financial, managerial or cost accounting (Hoffjan, Nevries, and Stienemann, n.d.). This paper will, however, focus on the first two. It will explore their similarities, differences and even provide proper examples to clarify their variations and importance in terms of improving operational performance. Financial accounting refers to the use of financial statements to generate financial information from income statements or balance sheets to reveals the past performance of the company for external users. The standards applied in this case are usually external to ensure objectivity. Management accounting, on the other hand, focuses on the internal users mainly guided by cost-benefit analysis and is future oriented.
Accounting, in general, refers to the actions conducted on financial data such as recording, assessing and presentation. Considering this fact, it is expected that some similarities exist. One thing that these two have in common is that despite employing different perspectives on accounting, they both make use of historical data. As such, it is seen that they consider cost approaches, techniques, and behavior. It can also be noted that both tend to quantify the transactions and activities of the business while considering the economic events. Additionally, they both draw information from the same data sets (Cunningham et al., 2014). These include assets, liabilities, equity, revenues, and expenses.
Differences
Financial accounting mainly deals with financial statements and accounting principles that are followed in giving reports on the financial performance of the company to the stakeholders and lenders in the stock market such as cash flow statements and balance sheet. On the other hand, managerial accounting offers deals with the provision of internal company to ensure that the company operates effectively as it focuses on the manufacturing products of the departments for better decision making for example capital budgeting and activity based costing (Bragg 3).
Secondly, financial accounting is done at the end of the accounting period mostly one year of operation for example valuation of all assets and liabilities whereas in managerial accounting the operational reports are prepared daily depending on the requirements of the organization such as productivity. Value of items as it complies with operational reports distributed to internal users only.
Thirdly, financial accounting gives a summary of reports concerning the financial position of the industry and the information must be reviewed and published by statutory auditors ( Soltani et al.383). The other side managerial accounting is accounted for by the mangers in the company and account for each resource used in the production process for each department.
Additionally, financial accounting is a regular requirement for each public enterprise owned by the government as its operation are governed by the Accounting Standards Board Companies Law whereas managerial accounting is not legally required but follows a specific framework in accounting for its reports to the internal users of the organization (388).
Financial accounting helps external stockholders in making decision on their stocks based on the financial information in projecting if an increase or decrease on stock options will be experienced making them to purchase or hold back the assets they already have for sale at a future date.
Real Life Example of How Managerial Accounting Helps Managers to Improve Operational and Financial Performance
Apple Inc. has been making use of managerial accounting, which has helped it in realizing consistent operational and financial performance. This practice has been done by focusing on transfer pricing. In this case, the federal tax, for example, have been considered. In 2011 it was 24.2%, the previous year 24.4% and in 2009, 31.8%. Focusing on this trend determines how the profits will be affected. .Other data such as ROA, RONW have been used to assess the competitor performances and total earnings that can be expected from the same.
In conclusion, financial and managerial accounting play an important role in an organization as both offers good record keeping of different transactions and analysis performance of a business in preparing effective policies of a future operation for the company.
References
Hoffjan, A., Nevries, P., and Stienemann, R. n.d. Comparative Management Accounting – Literature Review on Similarities and Differences between Management Accounting in Germanic and Anglophone Countries. Otto Beisheim School of Management.
Cunningham et al., (2014). Accounting: Information for Business Decisions. Cengage Learning Australia: South Melbourne.
Bragg S. Accounting Tools.2012 < http://www.accountingtools.com/questions-and- answers/what- is-the-difference-between-financial-and-managerial-acco.html>
Soltani, Sepideh, Shahnaz Nayebzadeh, and Mahmoud Moeinaddin. "The Impact
Examination of the Techniques of Management Accounting on the Performance of Tile Companies of Yazd." International Journal of Academic Research in Accounting, Finance and Management Sciences 4.1 (2014): 382-389. <http://ebooks.narotama.ac.id/files/Accounting%20for%20Managers/Chapter%2012%20%20%20Management%20Accounting.pdf>
