|Type of paper:||Essay|
|Categories:||Management United States Medicine Technology|
The accounting discipline constitutes variuous branches, and these include tax accounting, auditing, financial accounting, and managerial accounting. This paper constitutes a comparison of financial and managerial accounting. Financial accounting is a branch of accounting involved with summarizing, examining and reporting financial transactions concerning a business. It entails the preparation of financial statements that are made accessible to the public. Managerial accounting, on the other hand, is the process and procedures utilized in the creation of accounting reports that are critical in the management of a business and especially in decision making. The analysis of financial and managerial accounting will outline their differences and similarities.
Establishing the differences between financial and managerial accounting is important. First, financial accounting entails the provision financial reports such as balance sheets or income statements to individuals external to the business. External entities include stockholders, lenders, and even tax professionals (Richardson, 2017). Independent third-party auditors usually analyze these reports. The figures provided by these reports are objectives facts, and not past or future forecasts. Managerial accounting, on the other hand, is perceived as internal accounting since it aids in the management of a business (Richardson, 2017). The resulting information from managerial accounting aids managers in making informed decisions. These reports constitute breakdowns and estimates into the future and establish product costs, performance reports, and budgets among others.
The provision of financial numbers by financial accounting serves outsiders whose objective is to establish the market value of the business; managerial accountings develops operating budgets, job costing documents and profit and loss reports (Zubac, 2011). Financial accounting focuses on profitability as viewed by external entities. Managerial accounting deals with problems and solutions encountered within the enterprise. The operational reports that are developed by managerial accountants are usually internal while financial reports developed by financial accountants are critical externally despite also be circulated internally (Zubac, 2011). Essentially, financial accounting seeks to inform various stakeholders such as lender and shareholders in their view of the business purely as an investment. Managerial accounting seeks to aid stakeholders within the organization to ensure effective and efficient running of business operations and ultimately profitability. Another difference worth noting is that the designation of those in managerial accounting is Certified Managerial Accounts while those in financial accounting are referred to as Certified Public Accountants.
Despite these notable differences between these two branches of accounting, they have some similarities. One of the main similarities is that both financial and managerial accounting provides information concerning the general health of a business (Zubac, 2011). Financial accounting reporting carries a more formal tone, and there are guidelines on the format of presentation, while managerial accounting documents tend to be more informal since they are used within the organization. Despite this difference, both accounting methods allow the party involved to develop a conclusion concerning the financial health of the organization, ensuring they can make sound financial decisions. Another similarity is that these two accounting methods are informed by the same set of items (Zubac, 2011). These include a business' financial accounts, and they entail assets, expenses, equity, liabilities, and revenues. The company employees seek to examine the business's effectiveness and costs when dealing with managerial accounting (Richardson, 2017). Concerning financial accounting, the focus is on monitoring income statements and mostly the costs of materials and administration. The corporate employees involved in the two accounting methods tend to have similar educational backgrounds. It can be concluded that both engage in economic events and seek to quantify the outcomes of business operations.
Managerial accounting has been utilized by organizations to inform their decision making process better. For instance, Walmart has used managerial accounting to inform managers in making decisions (Atrill & McLaney, 2012). The company utilizes managerial accounting for various functions such as record keeping, planning, and decision making. One of the management accounting techniques used by Walmart is just in time management. The application of this technique helps the purchase of materials and production of units as required by customers (Atrill & McLaney, 2012). This means there is the minimization of production time and costs, and a waste of materials. Also, there is an increased quality of products.
In conclusion, it is important to note that accounting entails recording keeping of an organization's financial transactions. This leads to financial and management accounting which is utilized by organizations for different functions. Financial accounting is meant for external stakeholders such as lenders and stakeholders so that they can determine the financial health of an organization. Managerial accounting, on the other hand, informs a company's management to ensure appropriate decisions are made. Despite the differences between these two accounting methods, they also have some similarities. For instance, they both provide information on the financial status of a business and are informed a similar set of items such as assets, expenses, revenues, and expenses among others. This paper has examined the differences and similarities between financial and managerial accounting and discussed the application by Walmart. It is evident that the applications of these accounting methods are beneficial to both the internal and external stakeholders.
Atrill, P., & McLaney, E. (2012). Management accounting for decision makers (7th ed.). Pearson Education.
Richardson, A. (2017). The Relationship between Management and Financial accounting as Professions and Technologies of Practice. Retrieved from https://scholar.uwindsor.ca/cgi/viewcontent.cgi?article=1105&context=odettepub
Zubac, I. (2011). Financial Accountant versus Managerial Accountant in the Hotel Business System. Retrieved from http://www.dgt.uns.ac.rs/turizam/arhiva/vol_1601_1.pdf
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