Business owners need accountants.

Accountants are often used to determine the financial state of a company. They are able to identify a business’s cash flow, debt, production costs, and so much more. Without this information, owners won’t be able to plan for the future or make informed business decisions. Plus, missing data can even give the public false insight into how the company is doing.

Given the importance of accounting, we’ve outlined everything owners need to know about the two most important types: financial and management.

What’s the Difference?

1. The Users

One of the main differences is who these types of accounting are intended for. The data that’s gathered from managerial accounting is not meant to be shared outside of an organization. This means, that its main purpose is to help managers understand their company or organization.

Comparatively, financial accounting is information that an organization shares with the public.

2. The Restrictions

For financial accounting, the practice is held to very specific standards (like GAAP – generally accepted accounting principles). All companies are required to abide by these standards. For example, all will need to complete financial statements according to their rules. Otherwise, it can compromise their publicly traded status if it’s incorrectly filed.

This compares to managerial accounting which can be modified to meet the needs of its users. Meaning, that a company can manipulate data to show what they’d like to see. For example, the HR Department of a company may want to gather data on employee salaries over a period of time. Another example is if the production department wants to know how much they produce over a specific period of time.

Regardless, this type of accounting is gathered and intended for owners to better understand the business by giving valuable insight into the state of the company’s finances. From it, businesses will be better equipped to make informed decisions such as allocating resources, cutting costs, or expanding practices.

3. The Information

Just like we’ve already mentioned, the information that’s gathered from managerial accounting is meant to make better business decisions. It is done by measuring, identifying, communicating, and interpreting financial records.

This type of data intends to give insight into many areas of a business. For example, product costing and valuations. Information gathered from this will be able to tell employees and owners what the total cost of their good or service actually is (with it even being broken down further to tell owners things such as variable costs, fixed, direct, or indirect).

Without this type of accounting, owners could be operating under a false assumption that a good or service is cheaper than it actually is. When this happens, they will be making poor business decisions that could lead to bad financial practices.

The information used for financial accounting is intended for the public to interpret. This means they can make informed decisions on where to invest their money.

Although gathering all of this data and information can be tedious, it’s important. Without it, owners and investors won’t be prepared for the future, nor will they be able to plan ahead. Failing to have this data at hand can leave companies and individuals vulnerable to debt and incorrect projections.

So, consider getting the help you need by visiting a professional. Someone like us at A.P Accounting and Tax Services. We specialize in all things financial and can be there to help companies or individuals make sense of theirs.

So, if you are a business owner and you’d be interested in learning more, give us a call at 407-328-5001.

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