Question

Define how managerial accounting differs from financial accounting. Be sure to address the diverse users of managerial and of financial accounting and provide examples of how at least five users would utilize accounting information.

Answer 1

The management accounting differs from financial accounting in following ways:

--Financial accounting has primarily focus on the financial statements that are distributed to stockholders, financial analysts, lenders, and others outside of the company; on contrary managerial accounting has primarily focus on providing information within the organisation so that its management can operate the organisation more effectively

--Financial accounting is precise and is required to adhere to Generally Accepted Accounting Principles (GAAP), however management accounting is usually more of a estimate or a guess, because most managers do not have time for exact numbers when a decision needs to be made.

--Financial report shows the performance for the past period. In essence, they are backward looking. The time horizon for financial accounting is said to be periodical and is typically generate once a year. While Management accounting report provide information concerning the future performance as well as the past performance. The time horizon for managerial accounting report is immediate and is generated continuously

-- Financial accounting is meant for external stakeholders, whereas management accounting is presented internally. Financial accounting provides information that is used by the external parties outside the organisation. Examples of external parties are the investors, creditors, and the shareholder. On the contrary, Managerial accounting information is helpful for the individuals in the organisation specifically by the managers and the employees, who are interested in specific reports that can help to assist in planning, directing, and controlling the business

-- In the case of financial accounting the unit of measurement is only dollars; but in case of management accounting any unit of measurement is followed

-- Financial Accounting is based on double entry system such as recording, classification of business transaction and summarizing etc. but management accounting does not follows the double entry system

-- Financial accounting is usually prepared for one year but management accounting is prepared as and when needed.

Managerial Accounting plays a vital role in this process using the planning and control systems. Long-term plans are required to be linked to the budgeting system, to produce annual budgets that support the strategies of the company. In the same way, performance measurement systems can be used to compare actual outcomes to budgets and other targets that may focus on the goals of the company. The cost accounting system makes an estimation of the cost of goods and services, and the cost of organizational units, such as departments. Managers may require information regarding the product costs for a range of strategic and operational purposes including controlling operations, setting prices and decisions making about the continuation of a certain product. Thus by this way management accountant tailor information for the formulation and implementation of their organisation’s strategies.

Accounting provides firms with important information regarding the entity's operations. Business owners uses this information to know how well their company is operating; creditors and lenders know on the safety of their investments; employees are informed on the whether the company will be financially able to provide long-term employment with an ability to pay increased wages; customers are informed on usefulness of goods at fair prices; and general public is informed on the products usefulness and gainful employment for citizens without damaging the environmental issues.