Financial accounting versus managerial accounting, Accounting Basics

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Q. Financial accounting versus managerial accounting

An accounting information system offers data to help decision makers both outside and inside the business. Decision makers external the business are affected in some way by the performance of the business. Decision makers within the business are responsible for the performance of the business. So accounting is divided into two categories 1) financial accounting for those outside and 2) managerial accounting for those inside.

Financial accounting information comes out in financial statements that are intended primarily for external use although management as well uses them for certain internal decisions. Creditors and Stockholders are two of the outside parties who need financial accounting information. These outside parties settle on matters pertaining to the entire company such like whether to increase or decrease their investment in a company or to extend credit to a company. As a result financial accounting information relates to the company as a whole while managerial accounting focuses on the parts or segments of the company.

Management accountants in a company organize the financial statements. Therefore management accountants should be knowledgeable concerning financial accounting and reporting. The financial statements are the image of management not the CPA firm that performs the audit.


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