Role of Financial Accounting versus Managerial Accounting Matrix
Compare and contrast financial accounting and managerial accounting by answering the following questions in the matrix provided. Cite any sources you use in accordance with APA guidelines.
Term or Concept
What is the primary purpose of the accounting system?
The main purpose of financial accounting is to prepare financial reports that provide information about a firm’s performance to external parties such as investors, creditors, and tax authorities. Must be performed according to GAAP (Generally Accepted Accounting Principles) guidelines.
Managerial accounting differs from financial accounting in that managerial accounting is for internal decision making and does not have to follow any rules issues by standard-setting bodies. This data provided can be used to control or improve the operation of the business.
What are the types of reports produced?
Holistic and historical accounts of the company’s financial health:
Balance Sheet (company’s resources and financial obligations including assets, liabilities and owner’s equity
Income Statement (provides detailed accounts of the company’s revenues and expenses)
Statement of Cash Flow (demonstrates how changes in the balance sheet and income statement affect cash and cash equivalents)
Historical account of the business operation’s performance as well as a forward-looking forecast:
Sales and Revenue Forecasts (include forecasts of unit volumes or sales as well as the dollars or revenue associated with those sales. Variance explanations usually accompany sales and revenue forecasts.
Budget Forecasts and Variance Explanations (these forecasts often use a cost accounting of activity based cost technique. Actual budget results are compared to original plans as well as forecasts. Variance explanations usually accompany revised forecasts.
Who are the primary users?
References: Financial verus Managerial Accounting. (2004-2015, July). Retrieved from Money-Zine: http://www.money-zine.com/investing/investing/financial-versus-managerial-accounting/