Difference Between Financial Accounting And Managerial Accounting

Accounting has to be one of the most vital components when operating a business; regardless of the size of the business. According to Investopedia, accounting is the systematic and comprehensive recording of all financial transactions pertaining to a business and the process of summarizing, analyzing, reporting transactions to oversight agencies and tax collection entities (2017). Consequently, there are two types of accounting: Financial Accounting and Managerial Accounting that will be compared and contrasted. Finally, there will be an analysis on how managerial accounting helps managers to improve operational and financial performance. First, it is vital to identify the two types of accounting. Financial Accounting is primarily used to present the financial health of an organization to its external stakeholders that focuses on accounting over a specific period of time in the past and enables the audience (board of directors, stockholders, financial institutions and other investors) to see how the company has performed (Smallbusiness.chron.com,2017). Furthermore, theses financial reports have to be filled out on an annual basis and must be made part of a

Financial Accounting is designed for external use in order to provide the public with financial information, so they can make a sound decision to invest or financial support a publically traded company and it is vital that they conform to external standards set forward by the Financial Accounting Standards Board and are subjected to penalties that can lead up to a fine or jail time. Contrarily, Managerial Accounting, does not necessarily have to follow the guidelines set by the Financial Accounting Standards Board; however, the discretion of the organization is places in the hands of its management. Finally, we will evaluate how Managerial Management helps or improve operational and financial