Topics, 100 Accounting Resources, 100 Lecture List
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Accounting is a useful tool for understanding all areas of business, accounting being described as the language of business. On reason is that accounting is involved in all aspects of a business, from the planning and budgeting to the day to day transactions, to the assessments of performance. No matter what business we are in or what department we are in some form of accounting can be used to measure and improve our performance. Financial accounting is the accumulation of data related to financial transactions and the compilation of this data into a relevant form, financial statements. Financial accounting and the resulting financial statements are generated with external users in mind, users like investors, creditors, and customers. The same financial data is used for managerial decision making as well but the financial statements are much more regulated because external users are more dependent on the financial statements, external users not having as intimate knowledge of the business. In order to build trust from external user’s financial statements often conform to a strict set of accounting rules, rules governed by Generally Accepted Accounting Principles (GAAP). These rules are often best practices as well but they will lead to more conformity in the reporting of financial data on financial statements. Managerial accounting is for internal use. Managerial accounting uses much the same financial data but may compile this data in different ways, ways that could drill down on particular processes rather than looking at the big picture, as financial statements are designed to do. Managerial reports are for internal use, for management.