FIN540 Accounting for Managerial Decision Making
Financial accounting develops account information that is used by external parties such as stockholders, suppliers, banks, and government regulatory agencies in their decision-making. Management accounting develops confidential accounting information that is used by managers within an organization. Management accounting is a complex process of identifying, accumulating and analyzing information and then communicating this information to managers to aid in fulfilling organizational objectives. Interpretation of those analyses is also a large component of this discipline. This paper shall serve to illustrate the key differences and how professional organizations, such as the Institute of Management Accountants (IMA) influence organizations and standards.
Financial and Managerial Accounting: A Comparison
Financial accounting primary produces financial statements, such as profit and loss statements, statements of cash flow and balance sheets; these types of statements are primarily used for analysis by investors and government agencies but also internal managers. An important constraint to remember is that financial statements are limited by generally accepted accounting principles (GAAP). Management accounting reports fall under no such constraints as they are often used to aid managers in an improved management decision-making process (Pitts, Shargi, Gonzales, p.4) While there are behavioral implications in financial accounting such as concerns about how to measure and communicate economic phenomena such behavior considerations are secondary, although executive compensation based on reported results may have behavioral impacts. Management accounting is primarily concerned with measurements and how reports will influence manager's daily behavior. Financial accounting is chiefly focused on the past and performs a historical evaluation of a...