There are two different branches of accounting which are managerial accounting and financial accounting. First the managerial accounting, it the department which issues reports for internal managers. These reports are used for planning, forecasting and decision making.
Financial accounting is the department that issues reports for shareholders or any organisation outside the company. These reports show how the company was performing the previous years.
The table below will clarify the differences:
Description Financial accounting Managerial accounting
Users Financial accounting shows how the business is performing to people who are not working inside the organisation. Managerial accounting ...view middle of the document...
Information is always an estimate or a guess.
Managerial accounting has some rules or fundamentals which regulate the process. Managerial accounting is only used internally. Internally means inside the organisation only, moving data from one department to another or information about a certain department performance. Obviously, it is mainly used to issue reports to managers. These reports can be regarding a single department, more than one department or the whole organisation. Information is used from present data, this data is used to know the current performance and it helps in forecasting for future performance. It also helps in problem solving, since reports could be issued daily, weekly or monthly it will be easier to locate the threats and deal with it. Also due to the frequent reports, it helps in controlling the company’s accounts and helping in planning.
Many accountants have written books about fundamentals of managerial accounting. However I explained only the basic rules of managerial accounting. Differences between financial and managerial accounting are pretty clear. Managerial is mainly internal and it is obvious from its name, it is mainly used by managers. While financial is for external purposes. Stockholders, investors and external organisation should not interfere in any internal situation so that’s why the company issues an easy formatted report to make it easier for them to understand it. Financial accounting is more accurate than managerial accounting as it is based mainly on old information.
To sum it all up, accountants have created these division to help the company maintain its position or improve it. Managerial accounting is more complicated because it is more internally.
Costs of production are classified into different categories. This classification depends on the purpose of the cost. The first classification is the fixed, variable and semi fixed costs. This also can be described as cost behaviour.
• Variable costs: it is the costs that change by any change in the volume of production. For example, salaries, utility bills or cost of material.
• Fixed costs: that kind of costs is the same does not change even if the production was changed; it has to be in a certain time frame. Examples of fixed costs are rent and rates, insurance or fixed...