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Organizations of different business settings create different management departments and integrate them to achieve their objectives successfully. Accounting is a broad and crucial field in every setting. A relevant aspect of a business to highlight is the managerial and financial accounting departments. By developing and integrating them, the business will certainly be able to control its internal and external environment with success. A key approach to understanding each department role and significance is by comparing and contrasting their distinct functions yet their valuable need together in the business.
To start with role differentiation, managerial accounting job purpose focus on the internal processes of the business. It observes and functions at all levels of internal operations processes taking place, along with examining and evaluating various ways to enhance business profitability and efficiency. In simple words, it is what managers employ to gather all the information needed to track and meet their goals. Under this subcategory of accounting, managers greatly rely on reports related to day-to-day operations and work towards continuous improvement. These reports consist of budget making, estimating product costs, revenue, profit-making strategies, recruitment plans and expansion. The internal operational reports tend to be precise according to their purpose and investigation. They focus on managerial needs, act as a problem solver and decision-maker towards the right solution. It is internally focused to plan and improve the company financial performance. The internal management process is non-compliant to any legislations in terms of its control measures. Job titles like cost accountant, industrial accountant and private accountant monitor the company’s financial data and provide managerial accountants information to support business decisions. A real-life example on how managers under managerial accounting would help improving operations and performance would be when assessing my inventory process and costs at the time of low demand for the product, finding that some of my suppliers are more pricey than others, with proper managerial plans on cutting the cost and maintaining profits, mangers would reduce the order size and rate correspondingly. When revenues and costs are reviewed in comparison to the time before plan implementation it showed a noticeable drop in costs. On the other hand, financial accounting responsibility aims to collect accounting data to create financial statements that are usually prepared at the end of the financial year. In simple words, financial accountants exist to supervise tax payments, maintain the company’s financial records and analyze it to share the performance to their external parties. Managers here prepare reports according to imposed standards and policies like GAAP (generally accepted accounting principles) in the assurance of accuracy and validity of presented data reports. Financial accounting department task is externally focused, they disclose audit reports to the public, financial investors, creditors, government regulators and other industry officials. Mangers estimate calculates and evaluates business performance based on historical records like balance sheets, cash flow statements and staff salaries. Financial accounting concerns on the information to be analyzed and verified ensuring accurate timely delivered reports. to sum up, things managerial and financial accounting jobs require different certification and job training. They vary on role functions at categories like controlling systems, reporting focus, efficiency and timing, data standards and validation. Yet operates collectively to contribute an efficient and profitable business. They share similarities in terms of cost accumulation and cost allocation. Both division concern with financial statements, expenses and revenues, assets and liabilities. Both are financially focused, they report and format data that require educational expertise. A real-life example of how financial accounting helps stakeholders in decision making to understand their role thoroughly would be when if am interested in a company to invest in, in a retail business, I plainly would ask for financial reports and data that presents the company revenue and evaluates its performance within the given time-frame. This is significant to observe because I cannot gamble in investment with no historical performance records. As I view the past 3 years company revenue and I notice a drop in the past year compared to the previous 2 years, with further investigation on the past year unconditional external environments such as epidemic disease affecting the purchasing volume and therefore dropping sales and profits. This relevant disclosure would allow me to firmly reach an educated decision making over my investment in the company.
In conclusion, managerial and financial accounting play an important role in the enterprise. They both are financially focused, working on creating accounting records internally and providing it externally. Managerial accounting focuses on the details under the internal control reports and financial accounting focus on the business as a whole, by integrating the managerial reports to its information and disclosing it to the public. Managers of each department work together to present data that address the past or the future of the business. In a nutshell, Managerial accounting provides companies with quantitative and qualitative information on operational and financial performance. While financial accounting focuses on the external use of this information by creditors and others to assess the performance.
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