Financial Accounting and Managerial Accounting Systems

Executive Summary

Though, financial accounting and managerial accounting systems put together and analyze the same financial data, in addition they differ in a few aspects. Including the users of the info are different. Also the steps for their preparations differ like the time structures. Cost accounting is another sphere of accounting that handles the evaluation of costs of products and activities within an organization. It forms a substantial part of managerial accounting since through it, the management can also make decisions. This paper analyzes the similarities a swell as distinctions between the two.

Introduction

Management accounting is and accounting system that delivers the management with techniques offering of a business with information for purposes of inside use like decision making and effective control of the organization's resources. Corresponding to Enotes website (2010), steps in general management accounting provide information for decision creators in a business. In contrast, financial accounting procedures provide information to external users like the shareholders of a firm, government companies, and lenders to the firm. Management accounting reports are usually produced anytime; daily, every week, every month, or quarterly. While individuals within an corporation decide management accounting methods, financial accounting techniques must conform to external standards like the international financial accounting expectations produced by financial accounting expectations panel (FASB). Cost accounting is often confused with management accounting. Cost accounting involves determining the expense of an activity while management accounting goes beyond to combine multiple management disciplines that contain financial information for internal decision making. Therefore cost accounting can be thought to a necessary component of management accounting (Enotes website, 2010).

Characteristics of management accounting procedures

According to netTOM website (2010), management accounting methods should posses the following procedures. They should be; Relevant with the objective, complete, appropriate, clear and correct to the administrator, timely, communicated through the appropriate channel, less costly to provide and the quantity should be manageable.

The role of management accounting

Management accounting plays the following roles within an corporation:

Planning:

the information provided by management accounting strategies is essential in planning and budgeting processes. This is because such information is made up of various costs like prices, product costs and capital expenditures.

Control:

the management is in a position to see which activities are not conforming to the plan from the reviews provided by the management accounting (netTOM website, 2010).

Organization:

the management accountant can reinforce the organizational platform of the business by tailoring the accounting framework to the organizational composition.

Motivation:

the professionals and other personnel are always determined by the budgets prepared by the management accountant.

Decision making:

this is one of the major functions of management accounting types of procedures. Throughout the collection and research of data, the accounts she or he reveals to the professionals assist in decision making (netTOM website, 2010).

Similarities between financial accounting and management accounting

Despite the two domains having numerous distinctions, there also many regions of similarities as given below;

  • Certification: both domains emphasize on official certification. For you to be qualified, he/she must move the tests that are worried in each field of expertise. Qualifications come in form of certified management accounting and accredited open public accounting (Ehoh website, 2010).
  • Review of historical data: both systems make records basing on historical data review. In financial accounting, this is for evaluation purposes of the business between the present and days gone by, while for management accounting, it is ideal for determining the existing performance of the business and to think of a business financial forecast into the future (ehow website, 2010).
  • Measurement of the currency: the machine of dimension in generation of accounts in both systems is the currency. The reports made are thereafter used to provide tangible information to companies or show the financial talk about of the business. They may also be used to plan and create the cover the business (ehow website, 2010).
  • Terminology used: both systems of accounting use similar accounting terminology. E. g. debits and credits are being used in both systems to spell it out the money that is out and the money that go in to the business respectively (ehow website, 2010).
  • Techniques: the accounting techniques utilized by both systems are basically the same. E. g. the approach that can be used to determine the actual cost of the product (ehow website, 2010).

Differences between Financial and managerial accounting

Although both financial accounting and management accounting provide information to an individual for decision making, there are many differences between your two as summarized in the stand below.

Financial accounting

Management accounting

Information from Financial accounting system is utilized by external get-togethers to the business like the creditors, shareholders etc

Information from management accounting strategies is for inner use by the organizational management.

Financial accounting accounts provide information on financial performance of an organization over a given period of time and the situation for the business at the end of the time.

Management accounting studies are for planning and control activities and also for decision making within an organization.

It is compulsory according to the legislation for limited companies to get ready financial assertions.

Management accounting accounts have no legal need.

Financial accounting assertions are a finish to themselves as they dwell mainly overall firm aggregating costs and income from different departments.

Management accounting information can't be an end to something but rather aid in decision making. Also management accounting can provide focus to specific areas and not every office.

Essentially, a historical picture of your past procedure is presented by financial accounting types of procedures.

In management accounting, both historical past of the immediate past and a future tool for planning is given.

Financial accounting records should be provided for at least an interval of a year.

There is no time limit for management accounting documents.

The international accounting requirements must be followed in the prep of accounting affirmation (financial accounts of various companies can be compared). I. e. Generally accepted Accounting Principles must be used (GAAP).

There are no rigid guidelines to govern management accounting record preparation (you don't need to follow GAAP). The documents are used by managers of the business and therefore you don't have for contrast.

A specific format given by the IAS is usually to be used in the planning for financial statements.

There is not any given management accounting format and therefore no specific statements should be produced.

The aspect of financial claims most often is of financial nature.

Management accounting information definitely not money related. It can even be non-monetary.

(NetTOM website, 2010)

Types of management accounting reports

Since management accounting is a essential area of the planning tool set up, you can find the following managerial records within SAC:

- Variance research:

this usually determines the standard, projections and actual costs of an activity. One key factor to the business's standard is the difference between the actual and the standard costs, i. e. how much it can cost to create the same computer chip by two different computer manufacturers. The organization can examine its planning operations using the projections or estimate variance examination. Through variance examination, there is a special field called bottleneck accounting that examines the relative costs and the variances created through creation bottlenecks (lovetoknow website, 2010).

- Cost evaluation:

this is a type of managerial accounting that analyzes the exact cost of something. This usually begins with learning the price tag on direct expenditures like materials and labor. You can find other advanced management accounting techniques that include analysis of indirect expenses. They include cost projection accounting, calculating opportunity costs and facility overheads. These techniques essentially evaluate alternative ways in which the company may have invested the funds (lovetoknow website, 2010).

Activity based priced at:

this type of costing technique analyzes the expense of activities basing on the cost as opposed to the product. Its advantage is the fact it allows for deeper examination of the business's interconnected parts. This technique divides products into;

  • Unit- level activities (production of one product).
  • Batch level activities (cost per batch).
  • Product sustaining activities.
  • Facility sustaining activities.

The above survey implies Normal Costing System Per Unite Costs Retrieved from: http://ivythesis. typepad. com/term_paper_topics/management_accounting_report/

Accounting reports prepared on revenue performance for a business may also point out a few of the expected managerial accounting obligations. The example below was drawn from ABC System Profit Performance. The example that comes after signifies normal costing system revenue performance.

ABC System Revenue Performance statement retrieved from: http://ivythesis. typepad. com/term_paper_topics/management_accounting_report/

Normal Costing System Income Performance statement retrieved from http://ivythesis. typepad. com/term_paper_topics/management_accounting_report/

A business process like research development can be reviewed by either total cost examination and/or cycle cost analysis. This is because both methods examine the total expenditures involved in an enterprise activity. Which means two methods are extremely important n determining the company's success (lovetoknow website, 2010).

Return on investment: this is a type of cost analysis that includes cost analysis normally while calculating the direct earnings as well as determining the percentage (lovetoknow website, 2010).

Projections: this include future estimate of the organization such as; demand, sales, expenses, necessary resources and the amount of required employees. Projections form one of the very most complicated regions of managerial accounting due to difficulty ion predictions caused by inflation, consumer demand and materials prices. Therefore, they are designed on comprehensive modeling.

Balanced scorecard: this usually includes standard financial procedures. These steps include on perspectives of the customer on satisfaction, business process, technology and point of view on learning (lovetoknow website, 2010).

Digital dashboards: these are applications that were created in the form of a car's dashboard to show critical business information. They offer needed information fat just at a glance. Through them, the administrator is able to start to see the latest data about the business in the business's business contexts (lovetoknow website, 2010).

Conclusion

Management accounting and financial accounting are two major accounting systems used by various organizations. Despite their use, they can be completely different. Whereas financial accounting is ready after a certain time period and employed by external users, managerial accounting is made by the management accountant for inside use of the management and it does not have any specific format to be used hence no dependence on assessment with other organizations. The similarities of the two range from obligatory certifications, use of currency, terminology used to similar technology. Types of managerial accounting reviews available are the variance research, cost analysis, return on investment, projections and digital dash boards.

References

Ehow website, 2010: "Similarities of Financial and Managerial Accounting. " Retrieved on Feb 15, 2010 from: http://www. ehow. com/about_4853367_similarities-financial-managerial-accounting. html

Enotes website, (2010). "Managerial Accounting. " Retrieved on February 15, 2010 from: http://www. enotes. com/biz-encyclopedia/managerial-accounting

Lovetoknow website. (2010). "Managerial Accounting. " Retrieved on Feb 15, 2010 from: http://business. lovetoknow. com/wiki/Managerial_Accounting

NetTOM website. (2010). "Financial and Management Accounting. " Retrieved on February 15, 2010 from: http://cbdd. wsu. edu/kewlcontent/cdoutput/TOM505/page11. htm

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