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Managerial Accounting

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Q Michael Wateska

Accounting is often defined as the backbone of any Corporation or business. Without the numbers explaining the day-to-day operation, it's tough to tell how well or how poorly said company is doing. In order to simplify accounting as a whole, it is easiest to split it into two separate definitions. On one side. there is financial accounting. which focuses heavily on the numbers and creating balance sheets in order to keep track of the company’s finances. On the other side. there is managerial accounting. which focuses heavily on the management decisions that are madę in regards to the companies financial decisions.

Managerial Accounting vs. Financial Accounting

The main difference between managerial accounting and financial accounting is not that financial only focus on financials and numbers. Both of these rely heavily on numbers and interpreting them. The biggest difference is drawn from managerial accounting focusing also on operational reports throughout the company, and also not being held to certain compliance laws that financial accountants must obey. To be able to understand the morę specific differences. we should start with a definition of both.

Financial accounting itself is focused on the financial statements of a company. These could be anything from income statements. balance sheets. statement of cash flows. statements of stockholders equity etc. They specifically put these together based on the companies previous quarter. A great way to get a feel for these financial statements specifically would be to search your favorite stock (such as Nordstrom (JWN) previous 10-k and go over the companies balance sheet. income statements. etc. and review how they look and are put together. This would give you a good feel for where the financial accountants come from and how they look at a company.

Managerial accounting focuses on costs and manufacturing processes in order to streamline efficiency for the company. A good example of this is the “make or buy” decision that a company faces. From a managerial accounting perspective. the numbers they produced are taken from them and reproduced on the financial statements that the financial accountings put together. So. they work together, but both have different roles in the company.

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Managerial Accounting vs. Financial Accounting Who uses it?

Make or Buy Decision Costs

Contribution Margins Cost Allocations Pop Quiz

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