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Financial and Managerial Accounting: What The Difference?
Whether it is a sole proprietorship, partnership, corporation, or a limited liability company,
all businesses survive on the buying/selling of goods and services for cash or credit. They
may buy land and build office complexes, stores, or factories. They may buy supplies,
equipment, merchandise to sell, and/or the raw materials required to manufacture goods.
They hire employees, pay salaries and benefits. All of these business activities need to be
measured, analyzed, and recorded. Accounting is the set of procedures used to analyze,
measure and record said activities. For this reason, accounting is often referred to as the
language of business. Within the accounting realm, there are two main types: financial
accounting and managerial accounting.
Financial accounting generally abides by the GAAP to record the activities of a business
and to report the results of a business operations. Every transaction that occurs, both big
and small, are recorded as an entry in a journal, and each type of activity is given an
account in a general ledger (i.e. account payables and account receivables). Journal entries
are then sorted by posting them in the appropriate general ledger account. This information
(i.e. balances) in the general ledger accounts are what financial accountants use to prepare
financial statements such as the income statement and balance sheet.
There are numerousindividuals, both inside and outside, the business that use these
financial documents:
Managers use the information to establish how well the business is performing, to
determine what the business is worth, and to make decisions.
Financial institutions examine financial statements to discover a businesses debts and
