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Financial And Business Accounting

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Financial accounting is defined as measuring and recording business transactions and providing financial statements that are based on generally accepted accounting principles. It focuses on external reporting. The purpose of financial accounting it to aid accounts in their function of overseeing an organizations financial assets. The central outputs of financial accounting are audited financial statements such as balance sheets and income statements. Financial accounting is geared toward providing information to parties outside the firm, for example prospective shareholders.

By contrast, managerial account which measures and reports financial and non-financial information tat helps managers make decisions to abide by the goals of an organization. It focuses on internal reporting. The tools used by managerial accountants to meet their goal of decision support are such things as budgets, activity-based costing and financial planning. Managerial account is designed for internal use by firm's managers. Cost accounting is a subset of the more inclusive area of managerial accounting. Cost accounting deals with the "how to" of determining the cost of a cost object. A cost object is simply anything, be it a product, service, responsibility center, that the company chooses to determine the cost of.

Managerial accounting emphasizes the measurement, analysis, communication, and control of financial and non-financial accounting information. The organization that aids accounts with this task is the Institute of Management Accountants (IMA). The IMA is a leading organization dedicated to empower management accounting and finance professionals to help business performance. IMA's goal is to enable company's to more effectively engage with and enhance the management accountant and finance professional\\\'s performance.

Below is a chart identifying Managerial and Financial Accounting differences.

Item Management Accounting Financial Accounting

1. Necessity Optional Required

2. Underlying rules None other than cost/benefit GAAP

3. Underlying structure Varies by needs A = L + OE

4. Primary users Internal External

5. Time orientation Future Past

6. Content Mix of monetary and non-monetary Mostly monetary

7. Precision Mostly approximations Less approximations

8. Frequency As needed Quarterly and annual

9. Timeliness Good enough and on time After the fact

10. Entity Responsibility/cost center Enterprise

Neither financial nor managerial accounting is a replacement of the other. They each have an individual purpose in the accounting function. Financial reports are meant to give capital providers a way to assess how well the capital is being used within a company; they are backward-looking, based on historical accounting data and provide a broad view of the organizations performance. In contrast managerial accounting focuses on decision making support and is forward-looking. Given the needs of its types of operational managers, there are no codified rules in managerial accounting but many tools have been developed that are useful in decision support such as budgeting.

Most organizations need to have both an internal and an external focus and so they must pay attention to the suitability of both their financial and managerial accounting systems.

Participants of management accounting and financial management have an obligation to the public, their profession, the organization they serve, and themselves, to maintain the highest standards of ethical conduct. The IMA created the following standards of ethical conduct for practitioners of management accounting and financial management.


Practitioners of management accounting and financial management have a responsibility to:

* Maintain an appropriate level of professional competence by ongoing development of their knowledge and skills.

* Perform their professional duties in accordance with relevant laws, regulations, and technical standards.

* Prepare complete and clear reports and recommendations after appropriate analyses of relevant and reliable information.


Practitioners of management accounting and financial management have a responsibility to:

* Refrain from disclosing confidential information acquired in the course of their work except when authorized, unless legally obligated to do so.

* Inform subordinates as appropriate regarding the confidentiality of information acquired in the course of their work and monitor their activities to assure the maintenance of that confidentiality.



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