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Financial Vs Managerial Accounting Essay

1340 words - 6 pages

Managerial and Accounting ReportThe Differences Between Managerial and Financial AccountingAlthough 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 AccountingFinancial 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 ...view middle of the document...

The characteristics of managerial accounting are influenced by the varying needs of management. First, managerial accounting reports provide both objective measures of past operations and subjective estimates about future decisions. By using subjective estimates in managerial accounting reports, management is able to respond to business opportunities. Second, managerial reports need not be prepared according to Generally Accepted Accounting Principles. Because only management uses managerial accounting information, the accountant can provide the information according to management's needs. Third, managerial accounting reports may be provided periodically, as with financial accounting, or at any time management needs information. For example, if senior management is deciding on a geographical expansion, a managerial accounting report can be developed in a format and within a time frame to assist management in the decision. Lastly, managerial accounting reports can be prepared to report information for the business entity or a segment of the entity, such as a division, product, project, or territory.There are a very large variety of reports used in managerial accounting. The types of reports used vary by purpose (budgets, decision support, variance analyses, cost-volume-profit analyses, departmental performance reports, product costing reports, and many others). Financial and non-monetary information are prevalent in managerial accounting reports. Measurement of non-financial variables is increasingly important. Quality measures and statistical control of production processes are examples of non-financial variables. Although cost information is important, reports are not limited to cost measurements.Attribute Managerial Accounting Financial AccountingPrimary 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.Type of information reportedFinancial and non-monetary information is prevalent in reports. Measurement of non-financial variables is increasingly important. Quality measures and statistical control of production processes are examples. Although cost information is important, reports are not limited to cost measurements.Primarily financial, in dollar terms.The financial statements and footnotes are...

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