The Distinction between Managerial Accounting and Financial Accounting

The Distinction between Managerial Accounting and Financial Accounting

Many company owners do not notice the distinction between managerial accounting and financial accounting. Managerial accounting includes all internal procedures used to account for business transactions, while financial accounting includes aggregating accounting information into business financial statements. This blog will concentrate on the distinctions between managerial accounting and financial accounting in the following aspects.

Aggregation

The financial accounting reports the status of the whole company performance. It concentrates on the overall profits or losses, the financial position of a company at a specific time, and more. Managerial accounting provides more comprehensive reports concerning profits by item, demographic area, client and more.

Valuation

Usually, financial accounting is related to the efficient valuation of assets and liabilities. Hence, it is associated with impairments (Also see Impairment versus Depreciation), revaluations, and more. On the other hand, managerial accounting is not included in the assessment of the liabilities and assets. Rather, it focuses on showing the efficiency of each asset and identifying why a specific liability is required.

Systems

Financial accounting is interested in the result of the system that your company use in generating profits. This suggests that financial accounting does not utilise the system; it makes use of the results. For instance, a financial accountant is not interested in the payment method that your customers use. Instead, the accountant would like to know the value of products purchased or sold.

On the other hand, managerial accounting is related to the location of bottleneck operations and various ways of improving profits (Also see Outsourcing Accounting Services: Innovative Approach) by fixing any bottleneck problem that might take place.

Timing

Financial accounting needs you to prepare the financial statement at the end of each accounting duration. You can figure out the accounting duration based on requirements by the FRS, your company complexity, and more. Contrarily, managerial accounting needs you to release the reports regularly because the information included in those reports are helpful to the managers and it would be much better if they could view the report from time to time.

Standards

Financial reporting needs to abide by all financial reporting requirements. This applies to all business in Malaysia. Whereas managerial accounting usually produces reports and information for internal use and for that reason, it might not need to comply with FRS.

When it comes to business operations, both managerial accounting and financial accounting are similarly crucial. Hence, do not hesitate to outsource any accounting firm in Johor Bahru if you require assistance in preparing these documents.