Difference between Managerial Accounting & Finanacial Accounting.

Essay by eumair September 2006

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1. Differentiate between Financial accounting and managerial accounting.

Ans1: Financial accounting is conducted in order to communicate companies' operational results with groups external to the company such as creditors, internal revenue service, Stockholders, suppliers, collective bargaining units, etc. A strict body of accounting and reporting principles governs this communication. It is typically used in the development of balance sheet and financial statements.

Managerial accounting is conducted in order to assist the internal management of a firm with future performance. Managerial accounting must necessarily involve development of estimates and projections. Managerial accounting 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.

Moreover, Internal reports consist of financial and non-financial information that includes both historical and estimated data used by the management in conducting daily operations, planning future operations and developing overall business

Financial Accounting/Managerial Accounting

- External decision makers use it.

Users include:



-Labor unions

-Governmental Agencies



-Trade Associations

-General Public

Helps external users to get a reasonable return on investment.

Accuracy is emphasized

Historical in nature

It is used by internal decision makers

Users include:

-Board of director

-Chief executive officer

-Chief financial officer

-Financial officer.

-Vice presidents

-Business units managers

-Store managers

-Line supervisor

Helps management to achieve the goals and objective of the enterprise

Timeliness & utility are stressed over accuracy and form

It involves development of estimates and projections