FINANCIAL vs MANAGERIAL Accounting

Summary

This video compares managerial and financial accounting, highlighting their similarities and differences. Both are branches of accounting, but they serve distinct purposes. Financial accounting focuses on reporting past financial data to external stakeholders, such as investors, while managerial accounting aids internal management with decision-making, budgeting, and future planning. The video outlines key differences like target audience, outlook, scope, and regulation, emphasizing that while financial accounting is essential for external reporting, managerial accounting plays a crucial role in driving business strategy and performance.

Takeaways

• 😀 Financial accounting and managerial accounting are both branches of the broader field of accounting, with different purposes and target audiences.
• 😀 Financial accounting focuses on reporting past financial data to external stakeholders like investors, creditors, and regulators.
• 😀 Managerial accounting provides internal reports to help business managers make decisions about planning, budgeting, and risk management.
• 😀 Financial accounting follows strict regulations like GAAP or IFRS to ensure accurate, objective financial reporting for external users.
• 😀 Managerial accounting is less regulated and prioritizes relevance and timeliness, often using estimates and shortcuts to produce reports quickly.
• 😀 The scope of financial accounting is broad, consolidating data from various business units, while managerial accounting focuses on specific departments and segments.
• 😀 Financial accounting reports, such as income statements and balance sheets, focus on past performance, whereas managerial accounting looks forward with forecasts and budgets.
• 😀 Managerial accounting is aimed at supporting internal decision-making, including resource allocation and future planning.
• 😀 Financial accounting is essential for businesses that need to communicate their financial health to external stakeholders, especially as they grow.
• 😀 While financial accountants must adhere to standardized frameworks, managerial accountants can use flexible methods tailored to internal needs.
• 😀 Although not a necessity for every business, managerial accounting can be highly valuable in driving strategic decisions and improving future performance.

Q & A

What is the main objective of financial accounting?

The main objective of financial accounting is to report on a business's financial health to external parties such as investors, lenders, and creditors. It involves recording, summarizing, and analyzing financial transactions and reporting them in financial statements.

What does managerial accounting focus on?

Managerial accounting focuses on identifying, measuring, interpreting, and communicating information to management. This information helps in planning, decision-making, and risk management within the company.

How does the target audience differ between financial and managerial accounting?

Financial accounting targets external users, such as investors, lenders, and creditors, who rely on financial statements to assess the business. In contrast, managerial accounting is aimed at internal users, particularly management, to aid in making informed decisions and planning for the future.

How do the outlooks of financial accounting and managerial accounting differ?

Financial accounting is primarily concerned with reporting past transactions and historical data through documents like the income statement and balance sheet. Managerial accounting, on the other hand, is future-oriented, providing reports such as budgets and forecasts to guide decision-making.

What is the scope difference between financial accounting and managerial accounting?

Financial accounting has a broad scope, consolidating the results from all departments to provide an overall picture of the business. Managerial accounting has a narrower scope, focusing on specific segments, divisions, or cost centers within the company, often including non-financial information.

What is the priority focus of financial accounting?

In financial accounting, the priority is on objectivity and precision, ensuring financial statements accurately reflect the business's state of affairs without estimates or guesses.

What is the priority focus of managerial accounting?

Managerial accounting prioritizes relevance and timeliness, allowing for flexibility in using estimates and shortcuts to deliver analysis and reports quickly, even if they are not as precise as financial accounting reports.

What are the regulatory differences between financial and managerial accounting?

Financial accounting is heavily regulated, following standards such as GAAP and IFRS to ensure uniformity and accuracy in reporting for external parties. Managerial accounting, however, is less regulated, with no strict framework, allowing reports to be more flexible and confidential for internal use only.

Do financial accountants need to adhere to auditing standards?

Yes, financial accountants must adhere to auditing standards. Financial statements often need to be audited by independent external auditors to verify their accuracy before being shared with external stakeholders.

Are management accountants necessary for all businesses?

While financial accountants are essential for most businesses, especially as they grow, management accountants are not strictly necessary. However, they can provide significant value in strategic planning and decision-making for the future.