Financial & Managerial Accounting Basics

Definition: Process of recording, summarizing, and reporting financial transactions.
Purpose: Provide information to external stakeholders (investors, creditors, regulators).
Key Financial Statements:
- Balance Sheet: Shows assets, liabilities, and equity at a specific time.
- Income Statement: Reports revenue and expenses over a period, showing net profit or loss.
- Cash Flow Statement: Summarizes cash inflows and outflows from operating, investing, and financing activities.
Assumptions:
- Accrual Basis: Revenues and expenses are recognized when they are earned or incurred, not when cash is exchanged.
- Going Concern: Assumes the business will continue to operate indefinitely.
Regulatory Framework: Governed by Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).

Definition: Process of preparing management reports and accounts to aid in decision-making.
Purpose: Provide information for internal stakeholders (managers, employees) to improve organizational efficiency and effectiveness.
Key Components:
- Budgeting: Forecasting future financial performance and allocating resources.
- Cost Analysis: Assessing costs to understand cost behavior and control expenses.
- Performance Measurement: Using metrics and KPIs to evaluate departmental and organizational performance.
Types of Reports:
- Cost Reports: Detailed breakdown of fixed and variable costs.
- Variance Analysis: Comparing budgeted figures to actual performance to identify discrepancies.
Decision-Making Tools:
- Break-Even Analysis: Determines the sales volume at which total revenues equal total costs.
- What-If Analysis: Assesses potential outcomes based on varying assumptions.

Users:
- Financial: External users (investors, creditors).
- Managerial: Internal users (management).
Regulation:
- Financial: Regulated by GAAP/IFRS.
- Managerial: No standard regulations.
Focus:
- Financial: Historical data.
- Managerial: Future projections and strategic planning.
Reporting Frequency:
- Financial: Typically quarterly and annually.
- Managerial: As needed, often monthly or weekly.

Process of recording, summarizing, and reporting financial transactions.
Aims to provide essential information to external stakeholders like investors, creditors, and regulators.
Key Financial Statements:
- Balance Sheet: Displays assets, liabilities, and equity at a specific point in time, reflecting the financial position.
- Income Statement: Summarizes revenue and expenses over a specific period, showing net profit or loss.
- Cash Flow Statement: Tracks cash inflows and outflows from operating, investing, and financing activities, indicating liquidity.
Assumptions:
- Accrual Basis: Recognizes revenues and expenses when earned or incurred, irrespective of cash transactions.
- Going Concern: Assumes the entity will continue its operations indefinitely for reporting purposes.
- Regulatory Framework: Adheres to either GAAP or IFRS, which provide standardized accounting practices.

Involves preparing management reports to assist in internal decision-making processes.
Focuses on providing information for internal stakeholders such as managers and employees aimed at enhancing organizational efficiency.
Key Components:
- Budgeting: Involves forecasting financial performance and strategic resource allocation.
- Cost Analysis: Evaluates costs to comprehend cost behavior and maintain expense control.
- Performance Measurement: Utilizes metrics and Key Performance Indicators (KPIs) to assess departmental and organizational effectiveness.
Types of Reports:
- Cost Reports: Provide detailed breakdowns of fixed and variable costs.
- Variance Analysis: Compares planned budgets against actual performance to identify discrepancies and inform adjustments.
Decision-Making Tools:
- Break-Even Analysis: Determines sales volume where total revenues equal total costs.
- What-If Analysis: Evaluates potential outcomes based on different scenarios or assumptions.

Users:
- Financial accounting serves external users (investors, creditors), while managerial accounting is aimed at internal users (management).
Regulation:
- Financial accounting is subject to regulations (GAAP/IFRS), whereas managerial accounting has no formal regulatory standards.
Focus:
- Financial accounting emphasizes historical data, whereas managerial accounting focuses on future projections and strategic planning.
Reporting Frequency:
- Financial reports are typically generated quarterly or annually, while managerial reports are produced as needed, often on a monthly or weekly basis.