Managerial vs. Financial Accounting
Managerial accounting: A branch of accounting that is focused on internal reporting to assist internal management with decisions, structure, and goals.
Financial Accounting: A branch of accounting that is focused on external reporting of financial status to provide information to decision makers and interested parties.
Managerial accounting plays a role in internal decision-making, while financial accounting plays a role in external decision-making.
Budget vs. Actual Reporting
The budget is created through planning and it serves as the business's plan for the period ahead. The budget is typically done at least one year in advance, and the business uses it to predict the future. Essentially, it is their best prediction of how the business is going to perform in the future. Actual reporting is related to the budget, yet differentiated. Actual reporting is the result of the actual activity of the business. The actual activity can be one of three things:
- Same as the budget
- Higher than the budget
- Lower than the budget
Roles of Stakeholders
Shareholder: The shareholder is an individual or organization that legally owns one or more shares in a company. Think of this arrangement as owning stock, such as in a publicly traded company, for instance. Similar to owning stock in a business, shareholders own one or more shares in the company.
Investor: An individual who has dedicated capital to a company with an expectation of a return on their investment. Think of them as a bank--they've invested capital with a business hoping to earn a return on that investment.
Roles Within an Accounting Department
- Bookkeeper: An individual who documents an organization's monetary transactions. Think of them as the data entry.
- Accountant: An individual who is a practitioner with acquired skills in the field of accountancy. An accountant is the organizer within an accounting system.
- Controller: An individual within an organization accountable for all aspects of financial reporting and accounting. Think of the controller as the editor--they are responsible for verifying the completeness of facts and proper organization.
- Auditor: An individual who conducts an objective appraisal of accounting processes and data within an organization. Think of the auditor as the verifier. They can either be internal or external to an organization, and they verify the work completed by the accounting department relative to regulatory and industry requirements.