Differences Between Managerial Accounting and Financial Accounting.

 Managerial accounting and financial accounting are two distinct branches of accounting that differ in their scope, focus, and objectives. Here are some key differences between the two:

  1. Purpose: Financial accounting is primarily concerned with preparing financial statements that provide information about the financial performance and position of a company to external stakeholders such as investors, creditors, and regulators. Managerial accounting, on the other hand, focuses on providing information to internal stakeholders such as managers and employees to help them make informed decisions about the operations and management of the company.

  2. Audience: Financial accounting reports are aimed at external stakeholders who do not have access to the day-to-day operations of the company. Managerial accounting, on the other hand, is targeted towards internal stakeholders who need detailed and timely information about the company's operations to make decisions.

  3. Time frame: Financial accounting generally reports on the company's past financial performance and position over a specified period (typically a quarter or a year). Managerial accounting, on the other hand, provides real-time information on the company's current performance and position to help managers make decisions about future operations.

  4. Standards: Financial accounting is governed by generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS) that provide guidelines for how financial statements should be prepared and presented. Managerial accounting does not have such standards, and managers are free to use any relevant information to make informed decisions.

  5. Reporting: Financial accounting prepares financial statements such as balance sheets, income statements, and cash flow statements. Managerial accounting, on the other hand, prepares reports such as budgeting, forecasting, variance analysis, and cost analysis.

  6. Legal Requirements: Financial accounting is legally required to report a company's financial performance to external stakeholders, such as shareholders and regulatory authorities. Managerial accounting is not legally required to report information, but it is crucial for the company's management to make informed decisions.

In summary, financial accounting provides a historical, external, and legally required view of a company's financial performance and position, while managerial accounting provides a current, internal, and real-time view of a company's operations and performance to aid management in making informed decisions.

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