Financial and Managerial Accounting

Financial and Managerial Accounting
Accounting may be referred to as the act of documenting, classifying and summarizing monetary transactions, business activities or events, and then interpreting the results. Entities use accounting information when they wish to keep track of their financial transactions for future references. For this matter, economic and management processes are two branches of an accounting system, where one stress on availing a correct and fair financial position of an organization. On the other hand, qualitative information is availed to the business leaders through managerial records, assisting construction of effective plans which aim at maximizing profit. Financial and administrative tools are essential for business performance, but both are used to serve an outstanding purpose as can be revealed from similarities and differences discussed below.
Similarities Between Financial and Managerial Accounting
Both financial tools are similar in that; they are financially focused on evaluating business performance and get used by internal management to assess the position of a business unit. Financial and managerial accounting have a specific set of individuals referred to as users, who require in-depth knowledge to understand an accounting theory. Therefore, both tools provide critical financial information to different users such as investors, lenders or creditors, who later decide on buying or lending resources.
Both financial and managerial accounting generates financial reports, in a format that managers, executives, and investors can review.

Reports get produced from an office database. There are accepted accounting standards that govern both tools and the manner in which data get presented. As a result, information can be compared undoubtedly to other different companies. The financial reports generated by accountants within the businesses emerge with documents such as balance sheets, income statements or the statements of cash flows (Petrova, 2016). Since corporations are not required to exercise compulsory managerial accounting, there are less or no standards on the nature of the information contained in the reports.
Both financial and managerial practice requires education expertise in accounting work. The two business tools are highly recognized fields, and learners are required to undertake some programs to become specialists. Many organizations values both accounting fields and demands accountants to have specialized knowledge or certifications in the areas. For instance, there is a substantial standard for accountants that they should have a designation of Certified Public Accountant (CPA) programs to practice financial activities (Lasmane & Jakusonoka, 2013). Lastly, the two systems of accounts use accounting principles or concepts with intentions of meeting cost accumulation and allocation.
Differences Between Financial and Managerial Accounting
From the definition, financial accounting can be referred as a process of identifying, measuring, accumulating, summarizing and communicating results pertaining economic entities to the decision makers. On the other hand, managerial accounting can be referred as the application of statistical techniques to interpret information desired to aid management promote maximum efficiency (Matherly & Burney, 2013). The users of financial accounting are both internal and external parties while managerial records majorly involve the internal executives or individuals within a business operation.
The financial reports generated are not useful for planning, staffing, directing or organizing, but those obtained from managerial practice are highly regarded in controlling and supervising (Ilcus, 2017). The administrative reports are essential because they point out sources of problems within a business performance, and leaders can fix them urgently. Additionally, it is a legal requirement to prepare financial accounting reports and exchange them with investors, but managerial statements are not legally required since they are internally consumed. In other words, economic planning gets publicly reported while management accounting gets used within the organization. Hence it is confidential.
Another difference is that the primary objectives of financial accounting are to disclose business results and economic state of a performing company. A managerial process, on the other hand, helps management by displaying information needed to strategize, set and evaluate organizational goals. The financial statements are prepared and generated at a specific periodic interval, customarily done yearly (Van Der Stede, 2017). Also, when it comes to managerial practice, the accounting gets done as per the needs of business owners, for instance, it could be after four or six months. Changes might occur within the management anytime, and financial records at this point would get referred to help garner ideas on how to fix problems.
How Managerial Accounting Helps Managers Improve Operations.
Quality management through appropriate accounting helps managers make sound decisions and act quickly to cost related functions. For example, a male business accounting manager traced the inventory purchasing process and compared with the incurred cost. He realized that there was much delay and effort when buying items from certain suppliers than others, even though the cost of materials was same. After revisiting the cost of materials and the flow process, it got discovered that some purchase orders take time waiting for written approval from the owner. The decision which the manager made from this case was to reduce the order size and frequency from those suppliers. Additionally, since the delay for the approval gets delayed by the owner of goods who is a time traveling, the manager recommended the use of the automatic mechanism. For instance, using software designed to dispatch goods by automating the purchase order process after the seller verifies through email.
References
Ilcus, A. M. (2017). Period Cost and Its Impact on Financial Statement. Review of International Comparative Management / Revista De Management Comparat International, 18(3), 315-325.
Lasmane, N., & Jakusonoka, I. (2013). Discussion on Development of Certified Public Accounting. Economics & Rural Development, 9(2), 27-34.
Matherly, M., & Burney, L. L. (2013). Active Learning Activities to Revitalize Managerial Accounting Principles. Issues in Accounting Education, 28(3), 653-680. Doi:10.2308/Iace-50465
Petrova, R. (2016). Financial Statements Reporting as A Tool for Manipulating the Perception of Accounting Information. Business Management / Biznes Upravlenie, (1), 15-34.
Van Der Stede, W. A. (2017). “Global” Management Accounting Research: Some Reflections. Journal of International Accounting Research, 16(2), 1-8. Doi:10.2308/Jiar-51678