Managerial and Financial Accounting Report

Running head: MANAGERIAL AND FINANCIAL ACCOUNTING REPORT

Managerial and Financial Accounting Report

University of Phoenix

Managerial and Financial Accounting Report

Introduction

Accounting also known as the language of business is the communication of accounting data in formal reports to those who are interested in how a company is doing. All organized businesses maintain accounting records so that it will be readily available to interested parties.

Interested parties include investors, managers, creditors and government agencies. The accounting information is reported through various reports and is obtained from the day-day transactions of the business which is recorded. This paper will discuss the key differences between financial accounting and managerial accounting and discuss the various financial statements that are used to communicate the accounting data of the company. This paper will further discuss the types of business decisions that could be made when using the two different types of accounting. Ethics has always played a significant role in business practices and even more so now due to scandals of Enron, WorldCom and others. This paper will discuss the Institute of Management Accountants (IMA) Standards of Ethical Conduct for Management Accountants and will describe an example form the workplace that may constitute a violation of each category of IMA Standards.

Key differences

Financial and managerial accounting has key differences. The key differences can be seen in the fact that financial accounting is specific to an area while managerial accounting encompasses a larger area. Managerial accounting is concerned with the use of economic and financial information. Managerial accounting helps managers within the organization to identify, measure, accumulate, prepare, interpret and communicate the different information needed to record, plan and control the activities of an entity and to support the planning and decision-making process. Managerial accounting considers the financial reports of creditors, shareholders, tax authorities and regulatory agencies.

Financial accounting is based on standards and principles of the GAAP to report accurate, reliable and substantiative accounting reports of an organization. "Financial accounting is concerned with providing information to external users. It involves recording, classifying and summarizing of the effects of internal events and external transaction." (Finance India, 2005, p.1). Financial accounting uses reports such as the balance sheet, income statement and the statement of cash flow to report a quantifiable financial position and operation of an organization. The balance sheet is the first report used by accounting. "The focus here is on the topic of equity, or the company's book value (assets minus liabilities)." (Morrison, 2006. P. 347). The income statement reports on the profit and losses of the organization for a period of time and the statement of cash flow reports an organization's cash flow as operating, investing and financing activities.

Types of business decisions

The types of decisions made by managerial accounting are used to assist management to move the organization forward. One such decision is the use of cost accounting to support the decision to reduce the costs of the organization and increase profitability. "Cost management is important to organizations because it is more than measuring and reporting costs that have occurred. Cost management is focused on the future impacts of current or proposed decisions." (Hilton, 2006, p.5). Other decisions made by accounting personnel are financing investments, setting business goals and projecting revenues and costs. The decision of cost management entails preparing detailed plans, budgets, forecasts and performance reports. Cost accounting and other data are used to make decisions that support strategies, improve product services, and the use of resources that reduces cost. Accountants make strategic decisions by asking where do they want to go? And how do they plan on getting there? In the course of making decisions, some accountants may become biased with the decision that they made. The strategic decision may not be working but the accountant will fail to acknowledge this. Maintaining a high ethical standard is important for cost management analyst because decisions are made based on the information they provide. "Unethical behavior can lead to wasted resources, lost time, ruined reputations, and perhaps legal penalties for all involved."