5.8: Relationship Between Financial and Managerial Accounting
Learning Outcomes
- Analyze the relationship between financial and managerial accounting and how they are compartmentalized within modern businesses
Companies need to take a look at their numbers in a variety of ways to be successful. Financial accounting records are required, and are the basis for what is used in managerial accounting. In order to have anything to use for decision making, it is necessary to have historical data, right?
Companies who have been around a while will use historical data for budgeting purposes, while new companies need to prepare budgets and business plans based on what they hope to happen. As mentioned earlier, most smaller businesses will have only a one or a few people in their accounting department who perform the tasks of both financial accounting (historical) and managerial accounting (future). But larger companies will have separate departments that handle these tasks.
The financial and managerial teams need to work together to create the information needed for planning, controlling and decision making within a company. If they don’t work together, neither team will have what they need to create a profitable and successful company! The financial folks need budget numbers from the managerial folks to enter into the accounting software. Then they have the tools needed for comparison to determine if the company is meeting goals.
The managerial team needs historical data from the financial team to prepare their reports. Without that data, it would be impossible to determine which product lines are doing well, when changes need to be made, or how budgets come together. Although the two types of accounting are very different from each other, they work together to create a “strategy” or game plan that fosters this success.
Often falling under one heading of “The Accounting Department,” these two very different tasks are needed to insure success of companies, large or small.
Practice Questions