Financial accounting involves the preparation of a business's financial statements, mainly for users outside the business. These reports are used by owners, potential owners of a business, and by people who have loaned a company money. Some government agencies that regulate business and the stock market require companies to submit financial statements to them. Additionally, stockholders, suppliers, and banks also benefit from the financial reports that are generated. (Horngreen, Stratton, & Sundem, p. 5)
Managerial accounting helps managers plan and control a company's operations. Accountants prepare budgets to express management's goals in financial terms by identifying, measuring, accumulating, analyzing, interpreting, and communicating information. After a budget has been adopted, performance reports compare actual results with the budget. Cost accountants help management keep track of how much it costs a company to make the product, or provide the service, it sells. (Horngreen, Stratton, & Sundem, p. 5)
Rules and Regulations
In financial accounting, it is limited by a widely accepted set of rules, standards, and procedures for reporting financial information known as the generally accepted accounting principles (GAAP), as established by the Financial Accounting Standards Board (FASB). This standard requires that a company "account for all of their assets or economic resources according to their historical cost." (Horngreen, Stratton, & Sundem, p. 6)
Managerial accounting does not require the implementation of the rules and procedures of the GAAP. Management of an organization can create any type of internal accounting system that will work best for their company. However, they need to be aware of the costs that the implementation of such a system. (Horngreen, Stratton, & Sundem, p. 6) They also need to take into account the information that needs to be kept. More than one set of records is usually the norm.
Both financial and...