Compare and contrast financial and managerial accounting. Provide one specific, real-life example of how either financial accounting helps external stakeholders make informed decisions or how managerial accounting helps managers to improve operational and financial performance.
Financial and Mangerial Accounting
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Financial Accounting and Managerial Accounting
Financial accounting is the integration and aggregation of accounting data into financial statements of a particular firm or business entity. Managerial accounting on the other hand involves reporting on the internal process and business transactions of a company. Most companies prepare financial and managerial reports which are a source of information to its stakeholders. The aim of this analysis is to compare and contrast between financial and managerial accounting.
To begin with, both financial accounting and managerial accounting are used for planning and forecasting in firms. Financial accounting through the use of financial ratios and financial reports can plan for future accounting periods. Managerial accounting reports are used to forecast costs and revenues as well as budget for future health of the firm. Thus, both financial accounting and managerial accounting information can aid the company to plan for the future (Kim, M. and Schmidgall, 2019, pg.379).
On the contrary, financial accounting is reports mainly on profitability whereas managerial accounting reports on optimisation reports in the firm. Financial accounting helps to determine the profitability of the firm which is directly aimed at increasing share value and performance. Managerial accounting involves setting strategies that will improve operational efficiency of the firm. Also, financial accounting requires presentation of financial reports at the end of every accounting period whereas managerial reporting has no fixed reporting period. All financial statements need to be presented at the end of the financial year of the company which means its reports are constrained to accounting information during the accounting year. Managerial reports provide information periodically for example monthly, yearly, quarterly, and five year to report on how the firm is expected to perform (Hlaciuc et al., 2017, pg.103). Managerial accounting entails developing strategies to improve the firm’s operational efficiency. Furthermore, financial accounting requires financial reports to be presented at the end of each accounting period, whereas managerial reporting has no fixed reporting period. All financial statements must be presented at the end of the company’s fiscal year, which means that its reports are limited to accounting information during the fiscal year. Managerial reports provide information on how the firm is expected to perform on a regular basis, such as monthly, yearly, quarterly, and every five years (Hlaciuc et al., 2017, pg.103).
Moreover, financial accounting is controlled by standards of reporting whereas managerial accounting is not regulated by financial standards. Accounting information is reported and recorded based on the International Financial Reporting Standards (IFRSs) and specific Generally Accepted Accounting Principles (GAAPS) of a specific country (Richardson, 2017, pg.246). Managerial accounting has no standards as reports are prepared for internal control and consumption by the firm.
Example of Managerial Accountants Role
The Toyota Group introduced Just In Time Management System (JIT). The JIT system was used to save costs and production time as an order is processed only when placed by a customer. This has led to improved operational efficiency and minimal minimal of resources in the company (Pinto et al., 2018, pg.25).
Hlaciuc, E., Vultur, P., Cretu, F. and Ailoaiei, R., 2017. The interface between financial and management accounting. The USV Annals of Economics and Public Administration, 17(2 (26)), pp.103-110.
Kim, M. and Schmidgall, R.S., 2019. Key managerial and financial accounting skills for private club managers: Comparison to lodging managers. International Journal of Hospitality & Tourism Administration, 20(4), pp.379-399.
Pinto, J.L.Q., Matias, J.C.O., Pimentel, C., Azevedo, S.G. and Govindan, K., 2018. Just in Time. In Just in Time Factory (pp. 25-38). Springer, Cham.
Richardson, A.J., 2017. The relationship between management and financial accounting as professions and technologies of practice. In The Role of the Management Accountant (pp. 246-261). Routledge.