Financial vs. Managerial Accounting, short paper about financial and managerial accounting also includes rules/regulations, CPA and CMA
financial accounting Financial accounting involves the preparation of a business’s financial statements, mainly for users outside the business. These reports are used by owners, potential owners of a business, and by people who have loaned a company money. Some government agencies that regulate business and the stock market require companies to submit financial statements to them. Additionally, stockholders, suppliers, and banks also benefit from the financial reports that are generated. (Horngreen, Stratton, & Sundem, p. 5) Managerial Accounting Managerial accounting helps managers plan and control a company’s operations. Accountants prepare budgets to express management’s goals in financial terms by identifying, measuring, accumulating, analyzing, interpreting, and communicating information. After a budget has been adopted, performance reports compare actual results with the budget. Cost accountants help management keep track of how much it costs a company to make the product, or provide the service, it sells. (Horngreen, Stratton, & Sundem, p. 5) Rules and Regulations In financial accounting, it is limited by a widely accepted set of rules, standards, and procedures for reporting financial information known as the generally accepted accounting principles (GAAP), as established by the Financial Accounting Standards Board (FASB).
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This standard requires that a company “account for all of their assets or economic resources according to their historical cost.” (Horngreen, Stratton, & Sundem, p. 6) Managerial accounting does not require the implementation of the rules and procedures of the GAAP. Management of an organization can create any type of internal accounting system that will work best for their company. However, they need to be aware of the costs that the implementation of such a system. (Horngreen, Stratton, & Sundem, p. 6) They also need to take into account the information that needs to be kept. More than one set of records is usually the norm.
Both financial and managerial accounting must abide by the Foreign Corrupt Practices Act. This act is a “U.S. law forbidding bribery and other corrupt practices, and requiring that accounting records be maintained in reasonable detail and accuracy, and that an appropriate system of internal accounting be maintained.” (Horngreen, Stratton, & Sundem, p. 7) Reporting Requirements Financial accounting usually utilizes summary reports that are concerned primarily with the company as a whole. To contrast, managerial accounting uses more detailed reports which itemize parts of the company such as products, departments, and territories.
The use of performance reports is an important factor in financial accounting. These reports provide “feedback by comparing results with plans and by highlighting variances” (Horngreen, Stratton, & Sundem, p. 10) within the company. Managerial accounting mainly includes decision making – “the purposeful choice from among a set of alternative courses of action designed to achieve some objective.” (Horngreen, Stratton, & Sundem, p. 9) Focus on one of the two types of decision making, planning and control, is recommended for managerial accounting. (Horngreen, Stratton, & Sundem, p. 9) Certified Public Accountant and Certified Management Accountant Usually, one interested in financial accounting will earn the title of a Certified Public Accountant (CPA).
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This is obtained by “a combination of education, qualifying education, and the passing of a two-day written national exam.” (Horngreen, Stratton, & Sundem, p. 20) Quality CPA auditors are very important to any business wishing to utilize their services and as a result, it is closely regulated in the United States by the American Institute of Certified Public Accountants (AICPA).
The Certified Management Accountant (CMA) was recently developed because of the increased interest for managerial accounting. This title is obtained by a very extensive examination covering topics such as economics, finance, management, financial accounting and reporting, management reporting, as well as decision analysis. (Horngreen, Stratton, & Sundem, p. 20) This designation is “the management accountant’s counterpart to the CPA.” (Horngreen, Stratton, & Sundem, p. 20) This designation is also regulated very closely by the Institute of Management Accountants (IMA).
Conclusion Overall, financial and managerial accounting both are very important aspects of the business world. Most companies have some form of each type of accounting incorporated into their business operations. By following the appropriate standards for each, the company will be able to successfully keep track of their financial standing for internal as well as external purposes.
References Horngreen C. T., Stratton, W. O., & Sundem, G. L. (2002).
Introduction to Management Accounting (12th ed.).
Prentice Hall: New Jersey.
