Differences between financial/managerial accounting. Give example of the type of problems and issues exmined by each of these areas of accounting.
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Accounting refers to the function of recording and analysing the operations and conditions of an organization in primarily monetary terms. The information generated by accounts is used by different sets of people in many different ways. Depending on the primary purpose served by the accounting function, it is classified in different sub functions. Financial accounting and managerial accounting are two such sub-function within accounting.
Financial accounting is concerned with information on a firm that is required and used by people not involved in management of the company. It includes people such as shareholders and other investors, regulatory and other government authorities, financial institutions, suppliers, customers, and community in general. They use this information to know the state of the company including things like its profitability and financial worth. The information may also be used to ascertain and ensure that company a is being managed by appointed managers honestly, conforming to all legal requirements and good ethical standards. Financial accounting generally produces information according to methods and formats specified by statutory authorities. Also such information is usually audited and certified by independent professional auditors. The most common example of the financial reports is the annual reports published by companies which contain among others, the audited and certified annual accounts of the company along with an auditor's report and a director's report.
Managerial accounting is concerned with generating information and analysis designed to help manager of an organization to manage ti efficiently and effectively. While managerial accounting also uses the basic accounting statement used for financial accounting. these statements are generally more detailed and more frequents. Also managers use additional information and analysis such as comparisons with budgets and targets, standard costing, variance analusis and ration analysis. Managers use this information to monitor, control and plan the activities of the functions they manage.
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