Accounting is a vital part of every business. Accounting is used to create budgets, keep track of a business' assets and liabilities and provide an overall picture of the business' financial health. There are several types of accounting a company uses, two of which are financial and managerial accounting. Although both serve the same purpose, the audience for each is different.
Financial accounting is used to generate reports and statistics to detail a company's financial health to external interests. These external parties include stockholders, sleeping partners and mortgage holders. It enables those external stakeholders to see how their investment is faring and can help a current stakeholder decide to remain a stakeholder, invest more into the company or remove his assets and invest elsewhere.
Managerial accounting is completed for internal stakeholders, such as the management team. Managerial accounting is used for the day-to-day operations of the business. This information would be used to determine sales prices, employee bonuses, raises for employees and other general operation decisions.
Both financial and managerial accounting methods present the general health of a business. Financial accounting reports are more formal and have a strict format for presentation to external stakeholders. Managerial accounting reports are more informal since they are used in-house. But even with these differences, both methods allow the reader to make a conclusion on the health of the business, allowing them to make financial decisions that must be made.
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