Accounting information helps individuals make decisions for a corporation. The individuals that use this accounting information fall into two categories. The first category is the internal managers within a corporation that would need to make decisions on a daily basis based on this accounting information. The accountants that produce these reports are managerial accountants. Managerial accounting is the process of identifying, measuring, analyzing, interpreting, and communicating information to the internal managers of a corporation (Horngren, Sundem, Stratton, and Burgstahler, Schatzberg, 2008).
The second group of people that need financial information would be financial investors and government authorities. The groups use the accounting information to make long term decisions for the company. The accountants that produce these reports are financial accountants. Financial accounting produces information to stockholders, government agencies, and suppliers (Horngren, Sundem, Stratton, and Burgstahler, Schatzberg, 2008).
Managerial accounting creates detailed reports that focus on past, present, and future reporting. In managerial accounting, the reports that are run are not under any constraints. The reports are used by management to make educated decisions about the company. Some reports that are produced are:
• Sales forecasting
• Department reports
• Production reports
• Planning reports (Horngren, Sundem, Stratton, and Burgstahler, Schatzberg, 2008).
Financial accountants report on a periodic basis to shareholders, government agencies, banks, and other parties that are external to the business. Financial accounting must follow Generally Accepted Accounting Principles or GAAP guidelines. GAAP is a set of guidelines that public companies must follow (Investopedia, 2008).
Some reports that are created are:
• Balance sheets
• Income statements
• Retained earnings statements
• Cash flow reports
As we can see, managerial and financial accounting are very different, but both are very important in order for the users of the information to make informed business decisions.
Horngren, C.T., Sundem, G.L., Stratton, W.O., Burgstahler, D., Schatzberg, J., Introduction to Management Accounting (14th Edition) Pearson, Prentice Hall, Upper Saddle River, NJ.
Investopedia [Generally Accepted Accounting Principles – GAAP]. (n.d.). Retrieved November 14, 2008, from http://www.investopedia.com/terms/g/gaap.asp