Managerial and Financial Accounting
Managerial and Financial Accounting
Managerial and financial accounting are two types of accounting which provides information to a business in hopes of gaining a profit and remaining solvent. Businesses can choose from either type, which are classified as managerial accounting or financial accounting. In some cases, the accounting information provided will be used by both internal and external users. The difference between managerial and financial accounting is how each may place emphasis between the past and the future and the types of data provided by the users. Managerial accounting is used within the company and provides reports for the future for managers, whereas financial accounting is used outside of the business and provides reports based on historical for shareholders and creditors.
Managerial accounting is directed towards providing information to managers inside the organization while financial accounting is directed towards preparing financial reports which provides a firm’s performance information to external users such as investors, creditors, and tax authorities. The accounting standards for each accounting information process are not the same. For example, managerial accounting does not have to follow any regulatory accounting standards, but financial accounting must follow accounting standards. According to Edwards, Edwards, McNair, Olds, and Schneider (2006), “managerial accounting is a branch of accounting which provides useful information to internal decision makers and managers in operating an organization while financial accounting information is designed to satisfy the needs of an organization’s external users, including business owners, creditors and government agencies” (p. 6). “An example, both external and internal users are interested in the amount of income a business earns” (Edwards, Edwards, McNair, Olds, & Schneider, 2006, p. 6). The main difference between managerial...