Financial and Managerial Accounting

There are many accounting types. For example, financial accounting is the process of recording, summarizing, and analyzing an entity's financial transactions and reporting them in financial statements to its stakeholders. Managerial accounting is the process of identifying, measuring, interpreting, and communicating information to management to assist them in planning, decision-making, and risk management. These two are branches of accounting. Accounting can be cut down into a lot of branches. It is the "Language of Business." Tax and bookkeeping fall under financial accounting, while audit and forensic fall under managerial accounting. These two are similar since they are reporting data for the purpose to show it to their stakeholders.

In financial accounting, the target market is external, while in managerial accounting, the target market is internal. Financial accounting focuses more on reporting past transactions and events while managerial accounting focuses more on the future. Financial accounting reports transactions of liabilities, assets, and equity, but over a period of time, in the past. In managerial accounting, the management makes decisions that impact the future. (Ex: Forecasts, budget, etc.) In financial accounting the scope is broad, meaning that the financial statements consolidate the results of all different departments so that external parties (stakeholders) can get an understanding of the big picture of the whole business. In comparison, managerial accounting's scope is narrow. Managerial accountants like to slice a company up into different segments, divisions, and cost centers to provide the managers of all of these different areas with detailed reports to help them specifically. Managerial accounting is less regulated than financial accounting. No framework to follow their reports have whatever format they like. Unlike managerial accounting, financial accounting is heavily regulated. They are regulated because every statement has to be correct. They need to be audited. Auditing is the process of checking over financial statements before they are sent out in the books. Financial accounting gets more essential when they grow above a threshold. You can think of managerial accounting more as a luxury since companies don't need them. But they become important when wanting to predict, make decisions, etc. In financial accounting, the focus is always on being precise, which means no guesses. However, in managerial accounting, the priority is on being relevant and timely. There are many types of accounting, however these two are the most commonly used by businesses.