Financial accounting and managerial accounting are subdivisions of accounting and play an essential role within an organization.

Discuss the major differences between managerial and financial accounting then apply your understanding to the following 4 scenarios. Discuss if these are managerial accounting or financial accounting and why.

1. A company is looking to increase its gross profit by reducing costs for the upcoming periods. To further investigate, the production manager pulls reports that detail costs in the previous year. After discussions with the purchasing manager, he creates a budget based on assumptions and estimates.
2. An investor researching profitable companies pulls quarterly reports of various corporations. The reports are prepared according to GAAP with objective information and focus on the business as a whole. Are the reports prepared using managerial or financial accounting?
3. To fund its expansion in the upcoming year, Deacon Corporation negotiates a $4,000,000 loan with a local bank. The bank requires financial statements to ensure the company’s ability to pay interest and repay the principal. Would Deacon Corporation use managerial or financial accounting to create the reports for the bank?
4. During an audit, an agent looks at the company’s financial statements to verify that the same accounting practices were used in the tax return for a certain expense. Would the financial statements used by the agent be prepared using managerial or financial accounting?

Note:

• You need to reply to at least two discussion posts with comments that further and advance the discussion topic:

Here is first reply.

Managerial Accounting provides internal information to aid in decision-making, planning, and control within the organization. It focuses on future-oriented, detailed data and includes both financial and non-financial information. An example is a production manager analyzing costs to optimize production efficiency. Where Financial Accounting offers external stakeholders, like investors and regulators, accurate financial information about the organization’s past transactions and overall performance. It follows strict rules (GAAP or IFRS) for standardized reporting, and the information is publicly accessible (Richardson, A. J.2002). An example is an investor studying financial statements to make investment decisions.

Company’s Effort to Increase Gross Profit: In this scenario, the company’s objective is to enhance its gross profit by reducing costs in upcoming periods. The production manager takes the initiative to analyze costs from the previous year, looking for opportunities to optimize production processes (Richardson, A. J.2002). Additionally, a budget is formulated based on assumptions and estimates to guide future decision-making. These actions are representative of managerial accounting. The production manager’s analysis and budget creation are aimed at improving internal processes, making informed operational decisions, and planning for cost reduction. The focus is on enhancing efficiency within the organization.

Investor Researching Profitable Companies: Here, an investor is gathering information about various corporations to assess their profitability. The investor acquires quarterly reports prepared according to GAAP, indicating that these reports are following standardized accounting principles. The information provided in these reports gives a holistic view of each company’s financial performance and position. This scenario falls under financial accounting. The investor is an external stakeholder, and the reports serve as a basis for assessing investment opportunities based on consistent and comparable financial information.

Deacon Corporation Negotiating a Loan: Deacon Corporation is in the process of securing a loan for its upcoming expansion plans. To demonstrate its creditworthiness and ability to repay the loan, the company prepares financial statements that showcase its financial health (Warren, C. S., Reeve, J. M., & Duchac, J.2016). These financial statements adhere to accounting standards and present a comprehensive view of the company’s assets, liabilities, and equity. Since the goal is to provide external parties (in this case, the bank) with accurate and standardized financial information, this scenario is an example of financial accounting.

Audit Agent Verifying Accounting Practices: During an audit, an agent is conducting a review to ensure that the company’s financial statements and tax returns are consistent in terms of accounting practices, especially for a specific expense. The primary purpose of this verification is to ensure compliance with relevant regulations and standards, as well as the accuracy of financial reporting (Warren, C. S., Reeve, J. M., & Duchac, J.2016). Since the audit focuses on verifying the alignment of accounting practices and adherence to regulations, it pertains to financial accounting. The agent is assessing whether the company’s financial records are in line with accepted principles and reporting requirements.

In conclusion, financial accounting serves external stakeholders by providing standardized and accurate financial information, while managerial accounting serves internal stakeholders by offering customized insights for decision-making. The scenarios provided illustrate the application of both types of accounting in different organizational contexts.

16 hours ago

Here is the second reply.

The difference between financial accounting and managerial accounting is that financial accounting deals with the accounting involving the process of summarizing, reporting, and recording myriad transactions resulting from business operations over a period of time for the organization’s accounting management (Warren et al., 2018). On the other side, managerial accounting deals with the reports, documents, and statements in terms of the decision-making process for the businesses at the internal level of the organization in order to meet maximum results in comprehensive ways.
Furthermore, financial accounting involves the internal management and external parties of finance management of the organization, whereas managerial accounting deals with the internal finance management of the organization. Therefore, these are the differences between financial accounting and managerial accounting in terms of finance management of the organizations (Kimmel et al., 2020).

Instance No.1
In the first case, the company is looking to increase its gross profit by mitigating the costs in terms of upcoming periods in order to investigate in terms of detail production. The company is using managerial accounting in order to advance measures for maximum competitive results achievement in comprehensive ways. Finance accounting recognizes the comprehensive management of the budget-making process in order to make assumptions and estimates for the qualitative budget-making process for comprehensive management of production for cost in the previous years (Weygandt et al., 2020).

Instance No. 2
In the second instance, the investor researched the profit-making process in terms of pulling quarterly reports for the various corporations and the prepared system in terms of GAAP with the objective quarterly profit. In this scenario, there is a proper measure in terms of focus on the business by using the measure of financial accounting in order to advance the measures for the making of reports for the financial management in comprehensive ways.
It also improves the proper focus in terms of financial management for the report through the use of financial accounting in terms of the making of the financial system (Warren et al., 2018).

Instance No. 3
In the third instance, Deacon Corporation properly requires a financial statement to ensure the company’s ability to pay interest and repay the principal. As far as the corporation’s financial statement is concerned, the use of financial accounting helps in making proper statements for the organization in order to meet the maximum repayment system for comprehensive conduct and management process. Furthermore, the use of financial accounting helps in the creation of qualitative statements for the fund approval process for the corporation in order to meet maximum results in comprehensive ways (Weygandt et al., 2020).

Instance No. 4
In the last instance, the financial statement of the company by the audit is achieved through the use of financial accounting in order to meet maximum results in a comprehensive way for the qualitative management process. It helps in making effective measures for the financial statements in order to meet maximum results for expense management and preparation of agent statements in a comprehensive way.

Furthermore, the use of financial accounting helps the audit to create the financial report in order to make a return for the qualitative management and competitive effectiveness for the organization in order to meet the tax return process. Therefore, financial accounting plays an effective role in the preparation of financial statements in terms of certain expenses (Kimmel et al., 2020).