Essay by EE232428University, Bachelor's February 2005

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Accounting in general can be defined as an information system that provides reports to stakeholders about the economic activities and condition of a business. The financial accounting can be defined as the reporting of the financial position and performance of a firm through financial statements issued to external users on a periodic basis. While the managerial accounting can be defined as the process of identifying, measuring, analyzing, interpreting, and communicating information for the pursuit of an organization's goals. The key difference between managerial and financial accounting is that managerial accounting information is aimed at helping managers within the organization make decisions. In contrast, financial accounting is aimed at providing information to parties outside the organization.

The basic principles and concepts of managerial and financial accounting

Both managerial and financial accounting deals with economic events.

Both require quantifying the results of economic activity.

Both are concerned with revenues and expenses, assets, liabilities, and cash flows.

Both involve financial statements.

Both suffer from the difficulties of capturing, in quantitative terms, the many aspects of an economic event.

Differences between Financial and Managerial Accounting

Attribute Managerial Accounting Financial Accounting

Primary users of the information Managers; there are few constraints on the internal information accessible to them.

External investors and creditors; they have no access to the internal records of corporations.

Accounting standards No universally accepted set; there is no constraint on the format or content of internal reports Generally accepted accounting principles--a complex set of measurement and reporting standards used by publicly reported firms.

Variety of reports Very large variety; reports vary by purpose (budgets, decision support, variance analyses, cost-volume-profit analyses, departmental performance reports, product costing reports, and many others).

Primary reports are the financial statements and footnotes. The income statement, balance sheet and statement of cash flows are required reports.

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