Financial accounting is the backbone of the day-to-day functions of accounting. From payables, to receivables to collections, this area ensures all of the outstanding bills and debts are paid so the organization can operate
Memo: Understanding Similarities and Differences between Financial and Managerial Accounting
Attention : Susan Thompson
Susan- In an effort to get you up to speed on our expectations, I wanted to provide some details on the differences you can expect to see between managerial and financial accounting and provide you some examples from both areas.
Financial accounting is the backbone of the day-to-day functions of accounting. From payables, to receivables to collections, this area ensures all of the outstanding bills and debts are paid so the organization can operate. The details received from the day to day management of financial accounting are provided to stakeholders’, creditors, vendors and management to ensure the organization is being forthcoming and so management can use the data to further the position of the company(MUSE: Financial and Managerial Accounting). Reports provided within financial accounting include the following:
Statement of Owners Equity
Cash Flow Statement
Each of these documents is used by managerial accounting team members to help make decisions about the future of the organization.
Managerial accounting is optional. This is a team of managers who are trying to plan for future business and need to understand the ebbs and flows of the business itself and how any of the business segments or areas can function more productivity. One thing to note is that Financial Accounting is handled by external persons who try to ensure the strength of financial decisions whereas Managerial Accounting is managed by internal managers responsible for the success of the organizations. Financial Accounting Reporting for the IRS is mandatory and GAAP accounting rules must be adhered too. Managerial Accounting has no set rules nor are they bound to any oversight group and are not required to provide any sort of mandatory reporting.
Additional reports used to analyze the health of an organization are horizontal and vertical analyzes.
Horizontal analysis is where we take a series of reports year over year and try to determine what trends were in assets, equity, cash flow, etc. Using these reports allows the management team to better understand the business and what could be coming in the future. Vertical analysis is where we analyze financial statements based on entries for assets, accounts, liabilities and equities. We review each of these as a proportion of the total account and try to understand what led to any inconsistencies.
If you need any further clarification regarding these concepts, reporting or analysis, please reach out to me directly.
Attn: Board of Directors
In an effort to help our team better understand how we can use our current and previous accounting information to help plan and control for future business, I have broken down details on four key financial reports we receive regularly. These reports include the income statement, statement of owners’ equity, balance sheet and cash flow statement. Each of these statements is unique and can help our organization plan for the future. If there are any questions, you may have regarding how to read or understand these reports, I am happy to meet you one on one. I hope you can see the value of these reports and how key this information is to our team (MUSE, Principles of Financial Statements).
Income Statement- The income statement will include information that measures a company’s performance over a period. This statement key data including expenses relating to operating, sales, expenses, profit and depreciation. This document is helpful to managerial accountants because it provides historical data on the historical performance on the company.
Statement of Owners Equity- This includes the owner’s total equity for a year taking into an account any investments and draws the owner has made that year.
Balance Sheet- This includes assets (current and fixed) as wells as liabilities (current and long term). Owners’ equity is also included. This provides us a better understanding of what profit or loss we are operating under.
Cash Flow Statement- This statement includes the monies that are coming in and going out. This report can include will also consider investments and financing activities and provide a total of cash available at the close of the year.