Time value of money

We can't compare it to the other major form of accounting which is financial accounting. There will be overlap between managerial accounting and financial accounting but the major difference when we consider managerial accounting is that our main focus is for management. Our main focus is for management's use Management's goal to make decision making for the company so managerial accounting is geared towards decision making processes making reports for management. 

If we can trust that two financial accounting financial accounting is the creation of the financial statements ultimately we're entering data. We're going to create the financial statements the balance sheet the income statement the statement of equity and we could use that by management. However the primary goal and the way it is constructed is actually for external users. So when we make the financial statements when we think about financial accounting everything that we put together is really geared towards the AIS in the objectives and the goals of external users people like investors people like creditors. 

They're not designed necessarily or ultimately solely for the primary purpose being the management. Usually when we think about this we think hey wait a second the financial statements are basically all of the financial data. So wouldn't the manager wouldn't management need to be using these same income statement balance sheet statement of equity when making decisions as would be the external users. And the answer is yes the management will be using that information the financial data that we're putting together will be used for the managerial accounting as well but the managerial accounting isn't restricted in the same way as we are with the financial statement reports because the financial statement reports are really geared to and there's going to be restrictions on in terms of rate of regulatory 

restrictions so that the financial statements are proper and for the best use of the goal for external users. So although there are going to be the same financial data for the managerial accounting we can do other things with it outside of just the norm of the financial statements. We can customize them. In other words make custom records for management for decision making processes. So everything that's going to flow forward in terms of what's the difference between manager accounting and financial accounting will gear back to this answer. 

It seems fundamental it seems basic but everything stems from this and that is that managerial accounting is for management it's for internal users as opposed to external users it's for the decision making processes for that management to make decisions about future decisions as opposed to external users to make sure that they have the information they know they need typically for investment decisions or credit type decisions. So given that given that managerial accounting is for management let's think of some of the differences and it's always useful to think about the differences in contrasting the Financial Accounting versus managerial accounting. So who are the users for financial accounting and managerial accounting. 

The users are going to be external for the Financial Accounting and managerial accounting are going to be internal. And again that's the major focus. The Financial Accounting although we use the same information the information is designed and put together in such a way and regulated to be put together in such a way so that external users can trusted be able to know exactly what's going to be expected from it and be able to uses those external users being investors creditors and the managerial accounting. We're talking about internal users. So we don't have that same problem of the internal users trying to you know print reports that might be disruptive to themselves or anything like that. And therefore management can print their internal reports in more of a free way.

 How however they want to create the reports or put the numbers in order to make the best decisions. So most of the differences between these two types of accounting will fall into alignment with this major difference here. Who are we focused on. Internal users or external users then we have the reason for the accounting the external decision making in terms of financial accounting is what we're putting this together for. So we're looking for the external users investors creditors they want to make investments decisions should they put their money into the business should they invest in the stock.

 Should a bank loan money to the organization. Are those things they need in order to make those decisions. They need some financial statements that they can rely on numbers they can rely on and those numbers need to be based on what they want to know. Big picture. The full company how is the company doing as a whole. Managerial accounting is gonna be focused on a managerial planning type decisions. So that means that the whole purpose is to really take that information and put into a plan for the future.

 Now note that there is overlap of course because if I'm thinking about investing in a company I might do my own kind of projections and try to think about what are they going to do in the future do they have a good plan is it going to be a good plan. However really the investors are trying to see how they're where a company stands at this point in time. It might not be getting so much into the nitty gritty as managerial accounting may do to take these numbers and use them to make more detailed projections especially about a piecemeal piece by piece unit by unit area by area department by department of the company and then we got flexibility.

 The financial accounting is going to be limited by regulations and generally accepted accounting principles in the US. Typically there's going to be limitations and the reasons for those is because these external users need to know what they're getting. They need some form of standardization so that they can compare this company's financials to other companies financials and therefore financial accounting is going to be much more standardized.

 It's got to be in order to build trust with the public. If we're trying to get investments from the public then we have to be in alignment with standards that the public can't expect so that they can read what we're giving to them and be able to compare and contrast what's being given with other companies. So when we think about the financial statements then we know exactly what to expect for the most part because it's regulated. We have a standardized format and we have to have that standardized format in order to make these comparisons in order to make trade and investment in transactions as easy as possible. 

The managerial accounting however is not limited in the same way. Why. Because we're not given these reports to anybody outside the company. They're internal reports or they're us in or working trying to make the internal decisions. So we might be making reports about a small group a small unit we might be making reports about some type of product or something like that one product out of many in order to make those types of decisions. 

We could format the reports in any way we want because we're not giving them to external users who are then relying on them to make decisions. So we have a lot more flexibility for that reason for managerial accounting to run reports to make reports to think about you know what can what can we do in order to make the best decisions and what kind of data do we need in order to do that. The availability of the data financial accounting is typically going to be if it's a publicly traded company in particular it's going to go through an audit. 

We're not going to have a data possibly quarterly or yearly. We have to wait through that audit process to take place for them to really be finalized to have those financial statements. So it could be a very set process on when we're gonna get those numbers and the numbers might not be finalized of course for a little bit of time after you know after that the period has ended. Whereas managerial accounting and that of course deals with regulations we have to go through regulations we've got to make sure that everything is set up in accordance with rules and regulations especially if it's a publicly traded company. Do these financial statements align with Generally Accepted Accounting Principles and whatnot that's going to have that process is going to take time for financial accounting and it's very regulated for managerial accounting.

 We don't have that same kind of regulation. We have limits of course but those limits are typically going to be what can we do. So for managerial accounting the question is often a cost benefit analysis. You know we could give this more information. The question is is it worth it for us to get the more information. There is always a balancing question of is is it worth us to put in the time to get more detailed information. Or is the better decision that we can probably make with that more detailed information not worth the added cost. 

That's typically the type of decision making restraints that we have on managerial accounting as opposed to the types of regulatory restraints. So if we want to put numbers together if we want to put reports together if we want to analyze whatever we want to analyze internally no problem except that it costs money to do so and we want to make a cost benefit analysis to decide whether or not the time spent is worth the effort as opposed to conforming to regulations as is typically going to be what we're gonna do with financial accounting. 

The time focus for the financial accounting is typically going to be passed. We're looking into the past in other words we're looking at historical data now of course investors and are going to be looking to project into the future as well. 

But all the financial statement preparation is geared towards what happened in the past. From our side from putting this stuff together from a company side we're trying to just say Hey what happened and put it together as accurately as possible.

 And then the investors could make future projections based on that managerial accounting. When we put this information together it usually has a future focus. So we're trying to focus on future decision making. So when we put together reports internal reports whatever we need to do from an internal standpoint we're typically thinking about what can we do for the future in this place so that we can increase production if we look at the information focus it's gonna be on the entire organization for financial accounting. 

We're looking for information that's going to affect the entire organization and that's by design the financial statements are there for the entire organization. Because investors and creditors are typically worried about the entire organization. They're not really looking into the detail and not looking at segments of the organization. Some will and but for the most part of the reporting is going to give a whole as a whole what that what things look like as an entire on a managerial accounting where more typically going to go more into detail.

 We're going to look at the department by department we're going to look at product by product and try to make those decisions. So typically finance like accountants looking big picture how how do we stand overall whereas managerial accounting is going to go down into more of the nitty gritty and try to figure out what can we do.

 From a piece by piece standpoint to improve operations nature of information financial accounting is going to be purely monetary. So remember that of course the balance sheet is going to have things like equipment on it and this stuff and stuff that's not money in and of itself. Equipment is equip could be a forklift or something.

 But when we put on the financial statement we reported in terms of dollars everything is reported in terms of dollars and of course that same information will be used in managerial accounting but it's not the only type of information we recognize that that's only one set of information. If we can put numbers to something we typically will because that makes things a lot easier to compare and contrast if we have numbers to them.

 But oftentimes we may not have numbers the numbers may not be representing monetary amounts. We might be having to compare other types of things time or other types of things and we could have other things that are completely non numeric that we're comparing we might have to actually compare different types of data actually just reviews or something like that and try to make manageable decision making processes based on that. So again we typically will break things down to a monetary basis if possible break things down to a numeric basis if possible because that's better for making comparisons or easier to make comparisons. But we're also going to use in any type of data that we can to increase decision making processes.