Managerial vs Financial Accounting Transcript
Introduction Cost Accounting > Managerial vs Financial
Before we dive into what managerial accounting is and how it is used, let's take a step back and recap financial accounting and how we'll use that data to transition into managerial accounting. In its most basic form, financial accounting measures transactions and communicates that information to external decision makers.
You've done a lot of measuring thus far. You learned how to analyze transactions, how to journalize transactions, how to analyze accounts and make adjustments, and specifically how to measure and report specificities about assets, liabilities, and stockholders' equity.
Of course, the way financial accountants communicate about a company is through the standardized financial statements, including the income statement and the balance sheet. Because financial data is communicated externally and used by investors and creditors to make decisions and comparisons about companies, the data must be standardized. Thus, financial accounting must follow GAAP. Financial accounting also has a secondary purpose, and that is internal decision makers, like managers,
and owners use it to make internal decisions about their companies.
So I have modified the image to show what managerial accountants do.
They use financial statements, other financial data, and non-financial data to perform analysis and then communicate the results to internal decision makers, like managers, who use the results to make decisions about the company's strategy, plans, directions, and processes.
Managerial accounting analysis doesn't follow a standardized set of guidelines like GAAP (Generally Accepted Accounting Principles) because the information isn't communicated outside the organization. The only real guideline is that the analysis meets the needs of the internal decision makers. Because of this, both financial and non-financial data might be used to inform and guide decision making. Managerial accountants communicate the analysis to internal decision makers.
Although there are no set of standard reports, there are some common managerial accounting reports, like job cost records, bill of materials, budgets, variance analysis, and capital budgeting analysis, to name a few.
Again, the purpose of managerial accounting is to support internal decision making. Some of the common decisions addressed in managerial accounting are determined product cost, forecast costs, and various short term decisions, to name a few.
Good luck. And I hope you have a fantastic experience learning about managerial accounting.