In the world of accounting, there are two fields of study that often get confused. There is something called Financial Accounting and then there is Managerial Accounting.
Most people are familiar with Financial Accounting. But there is a huge difference between the two.
Harold Averkamp, CPA, and author of content at accountingcoach.com differentiates between the two in a very clear and concise way.
Financial accounting has its focus on the financial statements which are distributed to stockholders, lenders, financial analysts, and others outside of the company. Courses in financial accounting cover the generally accepted accounting principles which must be followed when reporting the results of a corporation’s past transactions on its balance sheet, income statement, statement of cash flows, and statement of changes in stockholders’ equity.
Managerial accounting has its focus on providing information within the company so that its management can operate the company more effectively. Managerial accounting and cost accounting also provide instructions on computing the cost of products at a manufacturing enterprise. These costs will then be used in the external financial statements. In addition to cost systems for manufacturers, courses in managerial accounting will include topics such as cost behavior, break-even point, profit planning, operational budgeting, capital budgeting, relevant costs for decision making, activity based costing, and standard costing.
In a nutshell, Managerial Accounting ( sometimes called cost accounting) helps managers make decisions for companies and organizations. Financial accounting helps individuals, everyday consumers, make more personal decisions. It is like the difference between balancing the check book for a large corporation versus that of a household of 6. The practices that you use will be very different.
ManagerialAccounting.org gives a good list of all of the things that one might expect to see within the realm of Managerial Accounting. Here is:
- Information on the costs of an organization’s products and services: For example, managers can use product costs to guide the setting of selling prices. In addition, these product costs are used for inventory valuation and income determination (Horngren and Foster, 1987).
- Budgets:A budget is a quantitative expression of a plan.
- Performance reports: These reports often consist of comparisons of budgets with actual results.
- Other information which can assist managers in their planning and control activities.
For those that might be interested in learning more about the intricacies of Managerial Accounting and who learn better through video, here are some resources that can be of help.
Rutgers Accounting Digital Library:
Professor Aldredge on Youtube also has a very in-depth Youtube channel that discusses Managerial Accounting in smaller portions. You can find that channel here.
