The Managerial Accounting And Financial Accounting Accounting Essay


Accounting has generally been a controversial term. A laymans understanding of accountancy would revolve around a number of banking processes and operations dealing with keeping financial records and transactions. However, accounting, in fact, covers much more than the above - mentioned activities. It deals with performing audits, financial management, identifying statistical and financial matters, checking up profits and losses, financial information and taxes. In fact, accounting today has a major role in organizing people's life through banks, financial organizations, salaries, marketing, loan bureaus and many others. In a brief introduction to "Accounting" I would like to present a general definition to this financial and banking expression. Accounting is a wide topic, and in the world of today no one can avoid having an account in the banks or at least dealing with accountancy through buying, selling or even getting one's salary or payments of any kind. Accounting is a statement of revenues, expenses, assets and liabilities of operator companies, corporations, municipalities, states and organizations. Therefore all financial statements are an aid to assess the financial status of the account object.

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In banks as well as in all private and public organizations, when all the accounting is done and postings summarized, an inventory of the account is produced and one can set up an income statement. Several accounts are often grouped together so that they naturally accumulate giving a better view to the financial administrations, the banks and the auditors. To borrow an actual example of accounting from my fieldwork in banking in Norway, I would be in fact talking about my organization. Accounting standards are usually related to the type of responsibilities and functions achieved through the application and implementation of each standard procedure. There are generally two accounting standards that can be used in Norway. Norwegian Accounting Standard (NRS) is used by almost all companies registered in Norwegian organizational register (company registration), while the companies which are listed in the stock exchange since 2005 are required to report under IFRS International Financial Reporting Standards (IFRS). Companies that are not listed may choose to use IFRS. This option is often used by companies considering IPOs or a subsidiary of a public company.

The annual accounting in Norway consists of four main parts: Earnings, balance sheet, cash and notes. The result shows the company's earnings and profitability.

The balance sheet shows what the company owns (debit) and how it is financed (credit). The cash flow statement shows the cash flows arising as a result of the company's business, usually divided into three main activities, operating, financing and investing. Note gives the information should provide further explanations that do not appear in the accounts and provide information such as the company's owners and what is paid in directors' fees.

A recently employed electronic accounting system is normally a computer program that consists of several modules that can be integrated with each other and can cover core functions such as order receipt, warehousing and logistics management, payroll, billing, accounting, and additional features such as goods receipt, goods delivery and contact management (CRM). Use of IT systems provides may benefits since large scale of the data can be processed quickly, reports can be produced quickly, and the systems consist of many automatic functions, which makes routing easier for users.

Until a few years ago, it was common that accounting systems were installed on users' machines. In recent years, one has to use Web services for accounting. The advantages are many, including accessibility from multiple locations, both workplace and home, and the ability to audit where the auditor can do much of the work directly from their office.

There are two types of accountings; Financial Accounting and Managerial Accounting

Financial Accounting, also known as "external accounting", is defined as the part of the financial statements which includes registration and information in relation to the outside world (Winther et al. 2007) .

Financial accounts, according to Winther ( shall be kept for 10 years in a satisfactory manner. Since we rarely or never have the access to internal accounts to our analysis object, we usually base analysis on the financial accounting. The fact that getting data about the internal financial status is quite difficult, it makes the analysis weaker. The difference between these accounts, also called external and internal accounts can be explained as follows: financial accounting / external accounting. Financial accounting is the accounting which is presented to the public, such as owners, shareholders and the IRS. There are certain rules, policies and procedures which decide how the accountings should be presented. Therefore the accountings of different companies can often be comparable since they are based on the same accounting policies. Company Law and Taxation Act contain detailed rules for financial statements to be recorded. Financial statements are also often characterized by statements form the basis for tax calculation, and that creditors often study the accounts when considering corporate credit rating. It occurs not infrequently that one manipulates the financial statements to reduce taxes or to make a good impression on the creditors.

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Managerial Accounting, also known as internal accounting is defined as "the part of the financial statements which include registration and information for internal purposes" (ibid.). It is the part of the internal accounts where we compare costs and revenues and calculates the result. Internal accounting is a broader term than management accounts and also includes, among other estimates, budgets, and inventory and payroll systems. Managerial Accounting main tasks are to:

- View performance metric for shorter periods than one year.

- Provide a basis for costing of products.

- Provide the basis for cost and revenue control of parts of the company (departments).

- Provide financial basis for making decisions.

However, we must be aware that these accountings rarely give the right picture of economic situation, as they are prepared to pay the least possible tax or make a good impression on the creditors the company depends on.

In the following I will describe an accounting where revenue and cost data are processed far more than the business accounts. The main purpose of the operation accounts I'm going to describe is to provide data for product costing and profitability analysis. If one wants to focus on efficiency control, one has to find another accounting topical formulation. Managerial accounting is the company's internal accounting and used in connection with financial management. It is not mandatory to bring such accounts, but all large companies do. The benefits of managerial accounting, compared with the financial accounting, is that the company is free when it comes to the choice of evaluation principles, and publishing the result is not mandatory. (Koller T et al. 2010)

To end up my discussion of accounting, I need to confirm that managerial accounting is not bound by the restrictions; the company is free to assume the assessment standards which are the most appropriate from a commercial view. Although the Managerial accounting provides the most accurate picture of the economic situation of the company, we rarely have access to those accounting. The concepts of management accounting have different opinions. Many denotes the revalued financial statements that management accounting. The aim is solely to determine a correct result as calculating as possible and provide an overview of the value creation in the company. Normally, the main focus of the accounting is to illustrate the profitability of primary activities.