Meaning of Managerial Accounting

Meaning of Managerial accounting:

Management Accounting is the branch of accounting used by the persons working within the organization for making decisions about the efficient functioning of the organization. In management accounting, reports are generated daily, weekly or monthly depending upon the requirements of the company. In management accounting, reports are prepared predicting the future of the company viz., sales forecasting reports which predict the future sales value of the company for the next financial year (s).

Uses of management accounting:

Management Accounting deals with making decisions between different alternatives.

1. Whether to do expansion or diversification programmes etc.

2. Whether to open new retail branches in far off locations.

3. Whether to recruit new manpower to improve the production.

Meaning of Financial accounting;

Financial accounting is the branch of accounting used by the persons outside the organization. In financial accounting, financial statements are prepared for the period for one year. Financial statements are used by the persons like shareholders to make decision whether to purchase the additional shares in the company or to sell off the existing shares. Likewise, banks and financial institutions use the financial statements prepared under financial accounting to assess the profitability of the organization and the liquidity and solvency of the organization to take the decision regarding 1.whether to give fresh loan to the Company 2.Whether to continue the existing loan arrangement and 3.Whether terminate the present loan

Further, prospective investors will decide about whether to purchase the shares of the company by analyzing the financial statements prepared under the financial accounting.

Difference between the managerial Accounting and financial accounting:

1.Financial accounting is based on historical data. Financial statements are nothing but the record of past financial transactions of the company for the particular period which is why financial accounting statements are prepared on the basis of historical cost concept. On the other hand, managerial accounting deals with past, present and future data which affects the transactions of the company in future.

2. The main objective of financial accounting is stewardship of business for the benefit of shareholders. Financial accounting is the preparation of financial statements periodically and presenting the same to the investing public and presenting the same to Government agencies and to banks and financial institutions which provided loans to the company. External users use the financial statements in conjunction with the general economic condition of the country and they will look at the overall performance of the Company. On the other hand, the objective of management accounting is to improve the economy, efficiency and effectiveness of operations. Internal users generally focus on the sub units of the company like departments and divisions of the company.

3. In case of managerial accounting, reports are prepared on monthly, quarterly or annual basis