Financial Accounting and Managerial Accounting

Financial accounting and Managerial accounting play an equal role for any type of business. Not only should the business be managed appropriately but must be financed properly. These two types of accounting have many similarities and differences between them. Both managerial and financial accounts have responsibility to manage in confidentiality, competence and integrity.

The purpose of Managerial accounting is to identify, analyze, measure, interpret and communicate the pursuit of an organizations goals and operations (Horngren, Sundem, Stratton, Burgstahler, Schatzberg, 2008, pg.5). This type of accounting helps the business make strategical decisions based on financial reports (balance sheets). In addition, it deals with the preparation of budgets to determine the allocation of the resources. Managerial accounting is generally used by mangers to help determine salary increases and or lay-offs.

The purpose of financial accounting is to provide information on the well-being of a business to outside (external) stakeholders. This includes mortgage holders, share holders and government agencies. (Horngren, Sundem, Stratton, Burgstahler, Schatzberg, 2008, pg.5) In other words, information is provided to parties who were involved in the financing of the business. In addition, it has the same process as managerial accounting but prepares past and present reports to internal and external parties.

In contrast, financial accounting deals with the financial matters of a business such as; in and outflow