Financial vs Managerial Accounting

Essay by butterbabyUniversity, Master'sA+, August 2006

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Managerial and Accounting Report

The Differences Between Managerial and Financial Accounting

Although economic information can be classified in many ways, accountants often divide accounting information into two types: financial and managerial. The chart on page three provides a graphic illustration of the relationships between managerial and financial accounting that are mentioned in this paper. Understanding this relationship is useful in understanding the informational needs of management.

Financial Accounting

Financial accounting information is reported in statements that are useful for persons or institutions that are "outside" or external to the organization. Examples of such users include shareholders, creditors, government agencies, and the general public. The primary reports used in financial accounting are the financial statements and footnotes. The income statement, balance sheet and statement of cash flows are required reports. As the name suggests, financial accounting reports are primarily financial in nature. The financial statements and footnotes are mainly concerned with reporting financial performance and position.

Some non-financial information may accompany the financial statements in the footnotes. Examples of non-financial footnoted information include: schedules, management's discussion and analysis and other narrative portions of the annual report.

To the extent that management uses the financial statements in directing current operations and planning future operations, the two areas of accounting overlap. For example, in planning future operations, management often begins by evaluating the results of past activities as reported in the financial statements. The financial statements objectively and periodically report the results of past operations and the financial condition of the business according to Generally Accepted Accounting Principles.

Managerial Accounting

Managerial accounting information includes both historical and estimated data used by management in conducting daily operations, planning future operations, and developing overall business strategies. The characteristics of managerial accounting are influenced by the varying needs of management. First, managerial accounting reports provide both...