Financial Accounting Versus Managerial Accounting. Essay

2039 words - 8 pages

What is the difference between financial accounting and managerial accounting and who benefits from the information derived for the reports and advice offered by these accountants? Financial accounting is typically used for external oriented groups and results in the development of a balance sheet and financial statements. Managerial accounting, on the other hand, uses the information in the balance sheet and on the profit and loss statement in a comparative manner to allow the manager to make decisions to better plan, organize, and control the operations of the business. These internal reports consists of financial and non-financial information that includes both historical and estimated data used by management in conducting daily operations, planning future operations, and developing overall business strategies.Financial accounting as defined by Bromwich (1988) is the reporting of past financial results and is intended for an external audience. Financial accounting is involved with record keeping through the use of ledgers, invoices, preparing balance sheets, and financial statements and are the tools used by external stakeholders such as current and prospective stockholders, lenders, investment analysts, unions, consumer groups, and government agencies. This communication is mostly historical in nature and is governed by a strict body of accounting and reporting principles and accuracy is emphasized. In other words, financial accounting is the effort to keep track of the historical economic events in a company. The financial statements produced through the financial accounting methodology is objective and is issued periodically to report the results of past operations and the financial condition of the business according to generally accepted accounting principles (GAAP). In essence, financial accounting follows the unifying concept of the equation, Assets = Liabilities + Owners Equity.Financial accounting regulations are required and must conform to the standards set forth by the generally accepted accounting principles (GAAP). As stated by Marshall, et al (2004), financial accounting is regulated by the Financial Accounting Standards Board (FASB), and, to a lesser degree, the Securities and Exchange Commission (SEC). The FASB is the private-sector organization empowered to establish financial accounting and reporting standards (www.fasb.org.). According to Bushman, et al (2001), financial accounting information is the product of corporate accounting and external reporting systems that measure and publicly disclose audited data concerning the financial position and performance of publicly held companies. Financial accounting is typically historical reporting and the information that financial accounting provides is invariably outdated by the time the financial reports are published. It is the overall summary of the business with the end products being the quarterly and annual financial statements.The source of the data for managerial...

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