The fundamental economic issue of how and where to allocate scarce resources is an issue which society constantly faces. In an organization, there are multiple accounting tools which can be used in order to accurately predict and determine where to allocate resources properly. These accounting tools can be divided into multiple sectors, one being financial, and the other being managerial. These two accounting methods are used separately and provide unique perspectives based on an organizations internal and external information. (Drury, 2009)
Financial accounting and managerial accounting both provide substantial information to its users but in different forms. Financial ...view middle of the document...
Also, managers must potentially make multiple decisions, sometimes on a daily basis, that affect the future of the business. These decisions need the best predictions of the future that are available as input in those decisions, no matter how subjective those estimates are. Management accounting information is treated as proprietary, and public companies are generally not required to disclose management accounting input or much detail about the systems that generate this information (Caplan, 1997). Typically, companies choose to disclose very little management accounting information to investors and analysts except for what is already included from required financial reporting. This means that very basic information, such as unit sales by major product category, or product costs by product type, essentially have no reason to be presented to entities outside of the organization, and if it ever is to be presented publicly and voluntarily, one can be sure that it will be shown and taken as positive news by the marketplace (Caplan, 1997).
Managerial accounting is used on all levels of an organization for different functions. A low level manager uses management accounting methods in order to determine if resources are being used inefficiently in their individual sector, while a higher level management can use managerial accounting information to perhaps shift an organizations production to the most cost efficient methods (Drury, 2009). For example, a company may realize that one product is not generating enough revenue compared to other products which the company sells, therefore the company may decide to shift their focus on allocating their resources to produce alternate products instead.
Both financial and managerial accounting are useful to any organization, but serve entirely different purposes. Financial accounting is a tool which organizations use to show their financial progress externally. This information is usually based on specific expectations and for a specific period of time. Alternately, the goal of managerial accounting is to provide relevant information to those with decision-making power within an organization itself. This information is used to help managers determine where to allocate a company's resources as efficiently and accurately as possible. Ultimately, both financial and managerial accounting must be used in order for a company to be properly ran. A company must be able to determine and present it's improvements and flaws through financial accounting in order to evolve, and must also be able to provide proper financial information internally in order for managers to make the best decision possible in order for an organization to be efficient.
The scope of business is always evolving and adapting. Markets are becoming increasingly dynamic due to the relationship between how businesses operate and modern society. Due to these changes, managerial accountants have to consider the dynamic market in which they...