Financial Vs. Managerial Accounting Essay

992 words - 4 pages

Financial and Managerial accounting are used for making sound financial decisions about an organization. They provide information of past quantitative financial activities and are useful in making future economic decisions. (Albrecht, Stice, Stice, & Skousen, 2002) The same financial data is used to derive reports for each accounting process yet they differ in some ways. Financial accounting primarily provides external reports for external users such as stock holders, creditors, regulating authority and others. (Garrison, Noreen, & Brewer, 2010) On the other hand Managerial accounting is concern with providing information that deals with the internal viability of the organization and is tailored to meet the needs of an individual organization. (Albrecht, Stice, Stice, & Skousen, 2002)
Managerial Accounting addresses those aspects that relates to an individual organization return on investments (ROI). (Albrecht, Stice, Stice, & Skousen, 2002) A company’s profitability depends on periodic attention to its assets turnover and profit margin. This process is designed to support the decision making that adds value to an organization. Organizations are sometimes broad and divisional. Planning, controlling, and evaluating is key in the effective decision making process. (Albrecht, Stice, Stice, & Skousen, 2002) An organization must make decisions about its future products, services, operations, and investments. It must begin a tracking process for cost, quality, and performance. Finally it must analyze the results, and variances, providing feedback to assess areas of personnel, divisions, products, and processes. (Albrecht, Stice, Stice, & Skousen, 2002)
Managerial accounting is unique to the individual organization. This internal accounting process is useful to the individual organization and is usually used strategically in accomplishing the organization’s mission and goals.
Managerial accounting helps managers deal with future economic decisions. The ever evolving changes such as competition, customer’s needs and desires, and ecomonic conditions demands a manager’s attention and rational decision. (Garrison, Noreen, & Brewer, 2010)
The decisions by the managers should be relevant to the particular situation or problem and is subjective. It need not be completely objective or verifiable. (Garrison, Noreen, & Brewer, 2010) Managerial accounting places less emphasis on precision reports to make decisions that have time constraint and therefore relies on good estimates by managers. Detailed segments reports are essential and therefore primary in managerial accounting. (Garrison, Noreen, & Brewer, 2010) Segments or units may be divisions, department, product lines or any sub unit deemed useful by the company. Because managerial accounting is primarily discretional by the individual organization it does not need to follow the generally accepted accounting principles (GAAP). Therefore it is not mandatory. Individual company can choose to do as...

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