Managerial Accounting vs Financial Accounting Essay.

Managerial Accounting vs Financial Accounting Essay.

 

Managerial and Financial Accounting ACCT/300: Principles of Accounting April 9, 2008 Managerial and Financial Accounting This paper will attempt to differentiate between managerial and financial accounting, the users of managerial and financial accounting and what type of business decisions would be made with the information. Managerial Accounting Managerial accounting provides accounting information to managers who are inside an organization and who directs and controls its operations, to help them make decisions to manage the business. For example, it provides information on the costs of an organization’s products and services, which managers can use products cost to guide the setting of selling prices, and use services cost…show more content…Managerial Accounting vs Financial Accounting Essay.

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Financial and managerial accounting are both very important aspects of the business world. Most companies have some form of each type of accounting incorporated into their business operations. By following the appropriate standards for each, a company will be able to successfully keep track of their financial standing for internal as well as external purposes. Financial accounting involves the preparation of a business’s financial statements, mainly for External users outside the business. These reports are primarily used by owners, potential owners of a business, and by people who have loaned money to a company. They analyze this information in conjunction with general economic information, such as information about the industry in which the company operates. External users focus on broad information that reveals the overall performance of the company as a whole. In addition, financial accounting only reports information on financial transactions that have occurred in the past. Stockholders, suppliers, and banks also benefit from the financial reports that are generated. (Horngreen, Stratton, & Sundem, p. 5) Managerial Accounting Managerial accounting provides information for internal users of accounting data.

Introduction
Accounting as a discipline and practice is concerned with recording, estimating, organizing and summarizing financial and operational data (Garrison, Noreen & Brewer 2011, p. 34; Hilton & Platt 2011, p. 45). The financial information derived could be classified into financial accounting and managerial accounting. These two types of accounting have several aspects which distinguish one from the other.Managerial Accounting vs Financial Accounting Essay.

The first of the differences involve user orientation. Financial accounting deals with providing information to stockholders, creditors, tax authorities and regulators who are outside of the company; whereas, management accounting deals with providing information to the company’s managers who direct and control the company’s operations (Garrison, Noreen & Brewer 2011, p. 33-34; Hilton & Platt 2011, p. 45). Although both groups of users rely on the same financial information, their perspectives vary according to their interests in the firm. For example, stockholders are interested to find out from the financial statements if they have acceptable returns from their investments; while creditors need to know if the company has the capacity to fulfill its financial obligations, while tax authorities need to know how much taxes are due based on the financial operations.

Second, the emphasis of financial accounting is on the financial consequences of past activities while management accounting is oriented towards using the financial data to make decisions for the future (Garrison, Noreen & Brewer 2011, p. 34). Financial accounting is more of a historical account of business activities whereas management accounting aims to project financial events that are yet to come.

Third, financial accounting focuses on objectivity and verifiability, while management accounting emphasizes relevance (Garrison, Noreen & Brewer 2011, p. 34). Relevance in management accounting means that the financial information should be applicable to the problem. For instance, being able to project the sales volume should indicate the budget required for purchasing inventory and the logistic expenses needed to handle such inventory.

Fourth, financial accounting emphasizes precision whereas managerial accounting stresses timeliness (Garrison, Noreen & Brewer 2011, p. 35). Accuracy down to the last centavo is held important in financial accounting. Meanwhile, managerial accounting depends on good estimates which are provided aptly so that decisions and the circumstances in which decisions are made contribute to the efficiency of plans or goals.

The fifth difference concerns the presentation of financial data. Financial accounting reports the summary of the entire company’s financial activities (Garrison, Noreen & Brewer 2011, p. 35). Contrastingly, managerial accounting looks into segments of financial information. For example, in management accounting, expenses in the product lines could be analyzed to identify which products may be prioritized and which products need to be removed from the product offers. The products weeded out are obviously those that are no longer profitable and may perhaps prove to drain the company’s funds.

Sixth, financial accounting also needs to comply with Generally Accepted Accounting Principles (GAAP) (Garrison, Noreen & Brewer 2011, p. 35). By doing this, external users are assured that the financial reports are made according to a common set of conventions so that the financial information is comparable with those of other firms in the industry and that fraud and misrepresentation are avoided. For management accounting, this aspect is not necessary as the users are internal.

The final difference is that financial accounting is mandatory while management accounting is compulsory (Garrison, Noreen & Brewer 2011, p. 35). External groups like the Securities and Exchange Commission and the tax authorities oblige the regular submission of financial statements from companies. In management accounting, a company may or may not practice management accounting as the option to apply management accounting in the company may be based on the company’s capabilities, orientation or practices.Managerial Accounting vs Financial Accounting Essay.

Abstract
This paper is going to consist of the differences between financial and managerial accounting. Furthermore, the types of information between accounting and financial will be brought up and discussed as well. The Institute of Management Accountants (IMA) Standards of Ethical Conduct for Management Accountants will be emphasized. They have four major bulletin points that define their existence that will be clarified in this paper along with some examples from my own experience.
Managerial and Financial Accounting Report
‘The primary objectives of financial accounting are to provide information that is useful in making investment and credit decisions’ (Williams, Ch. 1). Financial accounting extends its purpose to fulfilling the information pertaining to cash flows, its amount, the timing, and the unreliability of cash flows. Financial accounting also defines the resources of an enterprise in terms of its economics, the claims of those resources, and of course the changes to those resources. Financial accounting ‘is historical in nature, it results from inexact and approximate measures of business activity, and it is based on a general-purpose assumption’ (Williams, Ch. 1).Managerial Accounting vs Financial Accounting Essay.
‘Management accounting information is useful to the enterprise in achieving its goals, objectives, and mission; assessing past performance and future directions’ (Williams, Ch. 1). Importantly, it is also used to judge and offer praise if praise is required based on the decision making that has been initiated. Managerial accounting often receives adoration and deservedly so for it’s ‘timeliness, relationship to decision-making authority, its future orientation, its relationship to measuring efficiency and effectiveness, and the fact that it is a means to an end’ (Williams, Ch. 1). Managerial accounting correlates with companies making minor or sweeping changes regarding the information that managers interpret.
‘Accounting is the means by which information about an enterprise is communicated and, thus, is sometimes called the language of business’ (Williams, Ch. 1). Accounting is the nuts and bolts of a company; numbers do not lie and are very universal. Investors, managers, unions of different sects, various governments, and others all rely on those same numbers to make decisions affecting the company. ‘Because the primary role of accounting information is to provide useful information for decision-making purposes, it is sometimes referred to as a means to an end’ (Williams, Ch. 1). It is called the means to the end since the final and gut decisions made by multiple professionals are made based on the information that fine accounting provides.Managerial Accounting vs Financial Accounting Essay.
‘The integrity and clarity of our financial markets depend upon it’ (Jameson).
‘The IMA Standards of Ethical Conduct are designed to be proactive, helping finance professionals to link ethical perspectives directly to their ongoing workplace responsibilities’ (Haywood). The IMA has been quite busy over the past few years since accounting scandals have become more apparent and appalling. There has not been anything huge lately, but a couple of years ago when Enron and WorldCom shook the business world the government was compelled to make drastic changes. Those changes, including the Sarbanes-Oxley Act, I think have done more ill will towards publicly traded companies than good. These types of decisions are often made based on emotion rather than reason but this is another argument that is off the prescribed subject. The IMA has four principles that it stresses, which are: competence, confidentiality, integrity, and objectivity.
Competence is described as ‘perform their professional duties in accordance with relevant laws, regulations, and technical standards’ (Haywood). I would put competence in between reliability and confidence. I had a co-worker last fall who did not know what a direct studies class was. She was on the job for three months, this is what we sold. How can one be competent in their occupation when they do not know fundamental aspects of their job?Managerial Accounting vs Financial Accounting Essay.
Confidentiality is to ‘refrain from using or appearing to use confidential information acquired in the course of their work for unethical or illegal advantages, either personally or through third parties’ (Haywood). When speaking to potential students or students of mine that are from the same division, know each other, or even if they are strangers, I would not divulge any information besides the basics to them regarding the other person. There is no reason for them to know another person’s grades or issues in school.
Integrity is to ‘avoid actual or apparent conflicts of interest, and advise all appropriate parties of any potential conflict’ (Haywood). When I was in the navy I had a shipmate who popped positive for drugs. One can not possibly be an honest person or a person of merit when they are cheating themselves out of their career. Especially if one has a family at home depending on them to make simple but strategic decisions in their life. He was tossed out of the navy with little skill or education to market himself with in the civilian world.
Objectivity is to ‘communicate information fairly and objectively’ (Haywood). When I was in the navy I was a Quartermaster (QM). My job was to determine our position on the chart and to relay this information to the Officer of the Deck (OOD) whenever we were supposed too. Good or bad news, we were not ones to determine if that was so, we were there to provide sound and dependable information to the officer. The ship’s movement was based on our advice and plotting skills. The ship being where it was supposed to and reaching our destination on time were critical. The OOD and QM were to act as a team and being objective was the nature of this relationship.

Abstract
This paper is going to consist of the differences between financial and managerial accounting. Furthermore, the types of information between accounting and financial will be brought up and discussed as well. The Institute of Management Accountants (IMA) Standards of Ethical Conduct for Management Accountants will be emphasized. They have four major bulletin points that define their existence that will be clarified in this paper along with some examples from my own experience.
Managerial and Financial Accounting Report
‘The primary objectives of financial accounting are to provide information that is useful in making investment and credit decisions’ (Williams, Ch. 1). Financial accounting extends its purpose to fulfilling the information pertaining to cash flows, its amount, the timing, and the unreliability of cash flows. Financial accounting also defines the resources of an enterprise in terms of its economics, the claims of those resources, and of course the changes to those resources. Financial accounting ‘is historical in nature, it results from inexact and approximate measures of business activity, and it is based on a general-purpose assumption’ (Williams, Ch. 1).
‘Management accounting information is useful to the enterprise in achieving its goals, objectives, and mission; assessing past performance and future directions’ (Williams, Ch. 1). Importantly, it is also used to judge and offer praise if praise is required based on the decision making that has been initiated. Managerial accounting often receives adoration and deservedly so for it’s ‘timeliness, relationship to decision-making authority, its future orientation, its relationship to measuring efficiency and effectiveness, and the fact that it is a means to an end’ (Williams, Ch. 1). Managerial accounting correlates with companies making minor or sweeping changes regarding the information that managers interpret.
‘Accounting is the means by which information about an enterprise is communicated and, thus, is sometimes called the language of business’ (Williams, Ch. 1). Accounting is the nuts and bolts of a company; numbers do not lie and are very universal. Investors, managers, unions of different sects, various governments, and others all rely on those same numbers to make decisions affecting the company. ‘Because the primary role of accounting information is to provide useful information for decision-making purposes, it is sometimes referred to as a means to an end’ (Williams, Ch. 1). It is called the means to the end since the final and gut decisions made by multiple professionals are made based on the information that fine accounting provides.
‘The integrity and clarity of our financial markets depend upon it’ (Jameson).
‘The IMA Standards of Ethical Conduct are designed to be proactive, helping finance professionals to link ethical perspectives directly to their ongoing workplace responsibilities’ (Haywood). The IMA has been quite busy over the past few years since accounting scandals have become more apparent and appalling. There has not been anything huge lately, but a couple of years ago when Enron and WorldCom shook the business world the government was compelled to make drastic changes. Those changes, including the Sarbanes-Oxley Act, I think have done more ill will towards publicly traded companies than good. These types of decisions are often made based on emotion rather than reason but this is another argument that is off the prescribed subject. The IMA has four principles that it stresses, which are: competence, confidentiality, integrity, and objectivity.
Competence is described as ‘perform their professional duties in accordance with relevant laws, regulations, and technical standards’ (Haywood). I would put competence in between reliability and confidence. I had a co-worker last fall who did not know what a direct studies class was. She was on the job for three months, this is what we sold. How can one be competent in their occupation when they do not know fundamental aspects of their job?
Confidentiality is to ‘refrain from using or appearing to use confidential information acquired in the course of their work for unethical or illegal advantages, either personally or through third parties’ (Haywood). When speaking to potential students or students of mine that are from the same division, know each other, or even if they are strangers, I would not divulge any information besides the basics to them regarding the other person. There is no reason for them to know another person’s grades or issues in school.
Integrity is to ‘avoid actual or apparent conflicts of interest, and advise all appropriate parties of any potential conflict’ (Haywood). When I was in the navy I had a shipmate who popped positive for drugs. One can not possibly be an honest person or a person of merit when they are cheating themselves out of their career. Especially if one has a family at home depending on them to make simple but strategic decisions in their life. He was tossed out of the navy with little skill or education to market himself with in the civilian world.
Objectivity is to ‘communicate information fairly and objectively’ (Haywood). When I was in the navy I was a Quartermaster (QM). My job was to determine our position on the chart and to relay this information to the Officer of the Deck (OOD) whenever we were supposed too. Good or bad news, we were not ones to determine if that was so, we were there to provide sound and dependable information to the officer. The ship’s movement was based on our advice and plotting skills. The ship being where it was supposed to and reaching our destination on time were critical. The OOD and QM were to act as a team and being objective was the nature of this relationship.Managerial Accounting vs Financial Accounting Essay.

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