Financial Accounting Vs Managerial Accounting

17.03.2013

Financial accounting report is one that is prepared for the facility of some outside parties like creditors and share holders while the managerial accounting report is being prepared for the people of inside organization like managers. This contrast helps us in creating the major and basic differences between the financial accounting and the managerial accounting. Although these two type of accounting rely on the same financial information. These two accounting types also distinguish themselves from one another in many ways. These are different in the emphasis of past and the future, the form of data that they convey to the users and in many other ways. You will find these differences in more detail in the following paragraphs.

1.       Future is the focus:

The important task of a manager’s job is planning and managerial accounting needs a solid future orientation whereas financial accounting facilitates with the summary of the past monetary transactions. This summary can be beneficial for the planning but to a limited extent. The future cannot be the reflection of the past. Changes are the part and parcel of economic conditions and a manager’s job requires a planning that should be based on the estimates instead of the summaries of past.

2.       Significance of data:

Financial data is always needed to be objective whereas for the inside use, the managers require the relevant information whether it is objective or not. Relevance here means that the information must be useful for problem solving like it is hard to verify the expected sales volume of a store but this is the information that is quite handy for managers in taking their decisions. It is necessary that the managerial accounting information system must be elastic.

3.       Precision is less important:

Timeline is important for managers than precision. In a case where immediate decision is necessary, a manger would believe on estimate instead of waiting for any precise answer. Precision is always costly when it is associated with time and resources. So, in financial accounts precision has more importance than the managerial one.

4.       Segments are focus of an organization:

In financial type of accounting, reporting is done for the whole company whereas in managerial kind one or more segments of the company are being focused. Any segment can be selected by the management that it deems useful. In financial field segments have the secondary importance whereas in managerial, segments have primary importance.

5.        GAAP are as follow:

In financial field statements are needed to be prepared in compliance with GAAP that is generally accepted accounting principles. External users need this assurance that they have been made by bothering some common rules whereas in management, it is not a condition. Management can emphasize on the facts that are not considered in the GAAP.

6.       Managerial accounting is not mandatory:

It is necessary to conduct the accounting of finance because it is mandatory whereas in the case of management accounting it is not mandatory.  SEC and the tax department require the financial documentation so it is important to prepare the records of financial transactions.

    Comments

Leave a Reply

Your email address will not be published. Required fields are marked *