For instance, being able to project the sales volume should indicate the budget required for purchasing inventory and the logistic expenses needed to handle such inventory.
Fourth, financial accounting emphasizes precision whereas managerial accounting stresses timeliness (Garrison, Noreen & Brewer 2011, p. Accuracy down to the last centavo is held important in financial accounting.
The products weeded out are obviously those that are no longer profitable and may perhaps prove to drain the company’s funds.
Sixth, financial accounting also needs to comply with Generally Accepted Accounting Principles (GAAP) (Garrison, Noreen & Brewer 2011, p. By doing this, external users are assured that the financial reports are made according to a common set of conventions so that the financial information is comparable with those of other firms in the industry and that fraud and misrepresentation are avoided.
The accruals concept of accounting states that a transaction is recorded at the time when it takes place, not when the settlement is made.
On the other hand, a prepayment is the payment of an obligation or instalment payment before its due date.The first of the differences involve user orientation. Although both groups of users rely on the same financial information, their perspectives vary according to their interests in the firm.Financial accounting deals with providing information to stockholders, creditors, tax authorities and regulators who are outside of the company; whereas, management accounting deals with providing information to the company’s managers who direct and control the company’s operations (Garrison, Noreen & Brewer 2011, p. For example, stockholders are interested to find out from the financial statements if they have acceptable returns from their investments; while creditors need to know if the company has the capacity to fulfill its financial obligations, while tax authorities need to know how much taxes are due based on the financial operations.Accounting as a discipline and practice is concerned with recording, estimating, organizing and summarizing financial and operational data (Garrison, Noreen & Brewer 2011, p. These two types of accounting have several aspects which distinguish one from the other. The financial information derived could be classified into financial accounting and managerial accounting.Financial accounting reports the summary of the entire company’s financial activities (Garrison, Noreen & Brewer 2011, p. Contrastingly, managerial accounting looks into segments of financial information.For example, in management accounting, expenses in the product lines could be analyzed to identify which products may be prioritized and which products need to be removed from the product offers.This is a financial statement that illustrates how changes in the balance sheet and income affect a company’s cash flows.Specifically, the cash flow statement breaks the analysis down to three areas: operating, investing and financing activities.Using guidelines, such transactions are recorded, summarised and presented in financial statements such as the balance sheet or an income statement.Double entry booking keeping system lies at the heart of the financial accounting.