Managerial and executive positions at most firms, regardless of industry, require an educational foundation in financial and managerial accounting. Though these disciplines are intertwined, they serve different functions.
Financial Vs. Managerial Accounting
Generally speaking, managerial accounting deals with internal processes used to account for business transactions. It focuses on operating segments and financial planning and gives managers the metrics they need to improve operational efficiency, plan growth strategies and make informed economic decisions. Justifications for company expenses come from daily and weekly reports that compare budget figures with actual expenditures.
Financial accounting is the aggregation of information into financial statements and is used to support investing and lending decisions. These statements provide quarterly and yearly updates to parties outside the organization, including shareholders, investors, tax professionals and creditors.
Understanding Each Discipline in Context
The two types of accounting can be confusing in practice. It helps to understand the differences in each with regard to five categories:
Scope and focus. Whereas financial reporting encompasses the performance of an entire business, broken down by units, managerial accounting focuses on specifics such as revenue and profits by product line. Financial accounting focuses on efficiency and profitability, while managerial accounting often reports on the source of problems and potential solutions.
Financial reporting and timing. Managerial accounting is used to provide internal operational reports and estimates, which may be needed at any time. Financial accounting is used to create scheduled financial statements for stakeholders and other parties inside and outside the company, at the end of an accounting period.
Standards and scrutiny. Financial accounting is subject to the scrutiny of outside agencies like the Securities and Exchange Commission and is held to specific accounting standards. Managerial accounting can be performed in more proprietary ways, since it is done for internal purposes.
Valuation and productivity. Financial accounting evaluates a company's assets and liabilities. Managerial accounting focuses on the productivity, or gains and losses, from expenses.
Precision and orientation. Financial accounting requires higher precision, as it is used to create a detailed performance record. It has an historical orientation. Managerial accounting involves forward-looking estimates, so it has a future orientation.
A Solid Educational Foundation in Both Disciplines
UNC Pembroke offers an online course on the Foundations of Financial and Managerial Accounting. It serves as an accelerated foundation course for students with no accounting background or as a refresher before enrolling in required MBA courses. The course covers accounting basics with an emphasis on evaluating transactions and preparing and analyzing financial statements, including their use in the management planning and control process. UNCP's online MBA programs also include core courses in managerial finance and managerial accounting, as well as a variety of finance-related electives.
In your career, you may use one or both of these disciplines. MBA graduates often discover that while learning both forms of accounting prepares them for involvement in these processes, it also enhances their understanding of how important accounting concepts are to running a successful enterprise.
Learn more about UNC Pembroke's online MBA programs.
Sources:Investopedia: Managerial Accounting
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