Financial and Management Accounting



Financial and Management Accounting

The field of financial accounting focuses on the making and researching related to financial statement of organizations in order to make necessary business decisions. The stakeholders like investors, creditors, suppliers, debtors, government agencies, are mostly interested in financial information of an organization regarding its financial performance. The information from financial accounting is usually utilized by the stakeholders that are outside the organization and prepared by the financial and accounting managers. The main agenda of financial accounting is to reduce the issue of asymmetric information from the market and cater agent principal problem. The data utilized in financial accounting is predicted to be independent and provable because managers require this information to be relevant enough for estimating future plans and controls (Accounting Coach, n.d.).

Management accounting focuses on the accounting information that is presented in a form that helps financial managers to make informed business decisions that enhances the managerial activities and controlling functions within the organization. Managerial accounting reports and statements are more future oriented as it involves planning and on the other hand, financial accounting information is past oriented as it’s focus is on providing brief overview of past financial performance of the business. The reports and cost related information made as per the concepts of managerial accounting are primarily used by management of the organization for the purpose of making plans, decisions and implementing control measures. However, both concepts utilize the same sort of financial information and data (Accounting for Management, 2012).

Accuracy is considered expensive as it consumes time and resources, and less significant while making managerial accounting decisions and reports but this factor is significant for preparing financial accounting reports and statements. The managerial accounting emphasizes on non numeric or monetary data such as products customers are interested in, employee satisfaction level etc. as compare financial accounting in order to make necessary decisions.

Both of these branches of accounting are interlinked with each other and heavily depend upon on each other in order to complete stated tasks so it can be said that there is a great probability of overlap between these functions. The managers of the organization may become interested in gathering information pertaining to past performance of the business in order to predict the future performance. Similarly, investors and other stakeholders may become interested in obtaining future related information of the business regarding its profits, share prices, return on equity etc in order to make decisions of further investment in a business.

The Institute of management accounting is aimed at empowering both accounting and financial personnel to enhance skills, assist in better organization and contribute in the success of the business. It offers variety of courses in Finance and accounting that focuses on the provision of up to date information in the field of finance and accounts along with latest patterns and practices. It also provides a journal to professionals that are comprised of detailed academic and practical knowledge in the stated field and accept case studies from experienced professionals working ...

Introduction to Managerial Accounting



Introduction to Managerial Accounting

Managerial Accounting versus Financial Accounting

Managerial and financial accounting differs from each other in various aspects. Some of the major differences are highlighted below:

Types and Users of Information

Managerial accounting deals with providing the company’s information within the business i.e. to executives, managers, and employees. On the other hand, financial accounting deals with delivering information to outside stakeholders i.e. investors or shareholders (https://accounting4management.com; Averkamp, 2012). Where, users of managerial accounting need information that can help them in planning, directing, and controlling the operations of business and the nature of information needed by these insiders depends on their job level (McGraw-Hill Higher Education, 2008). On the other hand, the users of financial accounting (investors or shareholders) are interested economic information of the company (financial data) and use it for evaluating company’s position in their decision making.

Level of Aggregation

Managerial accounting data is less aggregated than financial accounting data. This is because of the nature of information its users want, that is, external users normally wants global information that can represent the organization’s performance as a whole (such as comparison with other company), however, internal users need focused but comprehensive information regarding the specific subunits of their organization (McGraw-Hill Higher Education, 2008).

Regulation

Managerial accounting consists of no regulation, as it caters to inside human resource of a business, and thus is only limited by value-added principles. In contrast, financial accounting holds higher regulations by SEC, FASB, and several other determinants that are typified by consistency, accuracy, reliability, and objectivity (McGraw-Hill Higher Education, 2008).

Characteristics of Information

Managerial accounting is characterized by timeliness and relevancy, whereas financial accounting is more concerned with reliability, consistency, objectivity, and historical nature. Financial reporting incorporates fewer facts and less estimates than managerial accounting. Moreover, managerial accounting illustrates the future expectations; where, financial accounting illustrates the past experience/performance (McGraw-Hill Higher Education, 2008).

Time Horizon and Reporting Frequency

Managerial Accounting covers data from past, present and future as well, however, financial accounting only deals with past data. Where, financial accounting information is disclosed, generally, at the end of every year, but accounting information is reported on continual basis as managers cannot wait until end of the year for discovering issues (McGraw-Hill Higher Education, 2008).



Needs and Uses of Financial Information for Internal Purposes

Financial information is not only essential for external users; it also holds immense importance for internal users. Financial information is used by inside employees as they need accurate accounting which is crucial to make significant financial and business decisions within a company that directly impacts on the business itself (Dollak, 2008). Maintaining an adequate level of liquidity and profitability is really essential for an organization, and in order to do so managers and employees requires financial information (Dollak, 2008). The management of any company requires financial information for appropriately conducting daily activities within their company, like financing a business, investing in resources, manufacturing its products or producing services, marketing those products and services, and managing employees as well (Dollak, 2008). Furthermore, accounting or financial information ...

Accounting Theory

Accounting Theory

Accounting Cycle

If we look at the accounting cycle of manufacturing company and Retail Company we will find a little difference in their accounting cycle. This difference in the accounting cycle is due one main reason. In a manufacturing company we have to calculate the cost of goods manufacture so that we can determine our gross profit and net profit to be shown in the Income statement. Here it is important to mention that cost of goods manufacture is not a part of Retail Company because a retail company just buy the finished goods and sell it into the market. While a manufacturing company first manufactures finished goods from raw materials and then sell it into the market (Eisen, 2007).

A normal accounting cycle involves collection and analysis of data, preparing general journal by recording the transactions, and then posting those transactions into general ledger. This data is then use to prepare an unadjusted trial balance. Once the unadjusted trial balance is made the entries are adjusted to prepare adjusted trial balance. This trial balance is use to prepare financial statements and closing the books of account. Once the financial statements are made they are verified and published (If needed).

Different companies have different accounting cycle due to their nature of work. I believe that this difference in the accounting cycle of various companies is justified because different nature of work has different requirements and same accounting cycle may create a barrier for the accountants from giving a true and fair view. As we have discussed that manufacturing company need to identify its manufacturing cost while there is no manufacturing cost for the retail outlets. Another difference which is observed in global environment is the difference between the reporting patterns. Some countries use GAAP (Generally Accepted Accounting Principles) as their reporting guideline and some countries follow IFRS (International Financial Reporting System) therefore there is a bit difference in the accounting cycle of different companies (Weygandt, 2009). Sometimes the difference is due to the law which regulates the accounting system of different industries. It is important that the companies use a constant accounting cycle rather than changing accounting cycle. Internationally the accounting cycle of all the companies is considered to be the same and the differences are considered as a reason of difference in operations and requirement.

Bank Reconcilation

Bank reconciliation statement or bank reconciliation is very important for every organization as it serves as a report of comparison of company’s accounting records with the records of the bank. The basic purpose of bank reconciliation is to identify the flaws or differences which can be resulted due to transaction of money between bank and company. The difference may arise due to the following reasons:

Un-presented Cheques, Errors in bank statement, Deposit in transit, Direct Credit, Direct Debits, Interest on Deposit, Bank Charges, Errors in Cash Book & Standing Order. These errors can be rectified so as to balance the amount of cash that appears in the cash book and bank statement becomes ...