Identifying, measuring, recording, classifying and summarizing financial transactions and events are all major purposes of managing accounts. Major decisions must be made by companies that would not only affect the consumers but also the internal workings of the company. This information gives the companies enough information to base strategic decisions upon. Accounting decisions can be broken down in two different categories, financial and managerial.
Financial accounting is designed mainly for external personnel. Financial accounting appeals to more of the investors, auditors, analysts or creditors. Financial accounting reports are very general or broad. They give an overview of the companies finances without having to break down every single individual category. The information provided by financial accounting has a general informative purpose.
Since financial accounting is geared more towards the external user, managerial accounting is aimed at internal users. The company’s management or boards of directors need information that maybe the stockholders would not need in order to make an investment decision. These reports are broken down to more in depth financial categories. Managerial accounts are usually prepared on an as-needed basis such as cost analysis or sales forecasting reports. These accounts are a much-needed source in order to make full picture decisions about a company.
The managers and owners need internal financial reports in order to business decisions to ensure a smooth operation of the organization. Financial statements are prepared for these individuals to provide a more internal comprehensive view of the financial position. Employees could use internal financial reports in order to help with collective bargaining agreements. These reports can also be used by employees to help in the discussions on matters of salary increases, promotion boards and the rankings.
The managerial accounting...