Type: Management
Pages: 2 | Words: 385
Reading Time: 2 Minutes

In the course of a financial year, a company, business entity or any institution communicates information about money, business transactions and other general financial information to its stakeholders. This process of communication is known as accounting and can be divided into managerial and financial accounting. This essay illustrates the differences in these two forms of accounting in terms of roles, responsibilities and the reports. It further highlights the importance of these two forms of accounting to the institutions they are based in.

Financial accounting is more of a historical field in accounting as it deals with finances that have already been spent. Its reports are normally intended for the stakeholders in an organization. It evaluates the monetary value of an institution’s business assets and outlines the cost of goods sold, services rendered and the money spent. The financial accountants are tasked with the duty of preparing financial statements and producing information necessary for future decision making by the managers. They assume an accountability role and account for the profits, losses, expenditure and incomes in a given financial year which are detailed in a financial statement. The financial reports account for the financial activities of an entity or industry and are critical for decision making. They provide detailed statements on the financial position, comprehensive income, cash flows and equity change.

Managerial accounting on the other hand is more of a predictive and innovative field in accounting. It is not mandatory for any given organization but it serves to improve efficiency in operations. The managerial accountants evaluate the financial statements with a view of coming up with decisions that will improve future incomes, cutting down expenditures and ensuring maximum profitability. Their reports aid the managers in policy making, planning and streamlining operations. The managerial accounting reports are confidential and designed for use by the managers. They give forecasts on income trends, expected profits and detailed review of risk, performance and strategic management. They do this by comparing plans and trends in operation, explaining variances, all of which are useful in assessing results with a view of making improvements.


Both managerial and financial accounting are essential for efficient operations in a given institution. They both contribute to the achievement of better results and desired performance. Therefore, they should be embraced by a particular institution if it wants maximum profits and incomes.

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