 Hello and welcome to the session in which we would look at the differences between financial accounting and managerial accounting. Most likely you will encounter this topic if you are taken in a managerial accounting course as an undergraduate. You need to know the difference between financial accounting which a course that you took prior to managerial accounting and the current course that you are taking now which is managerial accounting. Why? Because the nature of the material is different. The requirement, the reports are different. So it's very important to illustrate to explain the main differences between those two fields of accounting. We have financial accounting, we have managerial accounting, we have tax accounting, we have governmental accounting, we have many types of accounting. So you want to know the difference between each one of them. First, purpose and users. What's the difference between financial accounting, users and purpose and managerial accounting, users and purpose? Well, financial accounting provide investors and creditors. Those are the two main groups. Financial information to make financial investment decisions. Let's translate. So the purpose is to do what? Is to give you information that's going to help you make financial investment decision. What does that mean? It means to make a decision whether you want to invest in this company or not invest. If you're already an investor, you may want to sell your shares. Whether to lend money to this company or not to lend and if you decided to lend at what interest rate you are going to be charging them. That's the purpose of financial accounting. Mainly investors and creditors. It doesn't mean that others are not involved but those are the two main groups. Now the users as I notice are investors and creditors. They are external to the company. Now you can be an investor and an internal but generally speaking the investors and creditors are external to the company. Now managerial accounting, the purpose is different. The purpose is to provide managers and employees and hear what we mean by managers and employees. This includes executives. This include officers. This include board of directors. Anyone that work for the company. Also financial information in nature. However the purpose of that financial information is to operate the company on a day-to-day basis. Managers who are considered internal users. Managers, employees are internal users and for financial accounting users we call them external users. Internal users they need to run the company. They need to operate the company on a day-to-day basis. So the financial information that they need is to help them make those decisions not to invest in the company. So that's one of the main differences. The second difference is accounting standards. Financial accounting and here we are discussing large companies. They follow generally accepted accounting principle, GAP. Something that you learned about in financial accounting. Now if you're an international candidate they might follow IFRS. The point is you follow certain standard and those standards are formal in a sense that they are written down and everybody will have to follow them because when you want to present your information to the investors and the creditors all investors and creditors should understand the same language which is GAP or IFRS. The formal language that we are using to prepare those financial statements. On the other hand managers there is no standard. In other words the way you report the information is flexible. What does that mean? It means as long as the managers accept the information there is no requirement on how to present this information. Why? Because I need this information to run the company. So give it to me in the most relevant way that's going to help me run the company. Timeliness versus precision. What does that mean? Which of these two focus on precision? Which of these two field of accounting focus on timeliness? Well financial accounting statements are not issued until an audit has been conducted. So maybe the company's year end is December 31st. The financial statement may not be issued till March 1st. It may take two to three months sometime to prepare the final financial statement. So the emphasis on the financial statement prepared for financial accounting is precision. We want them to be in quote accurate. There is no such thing as accurate. We call it precision. Precision. On the other hand managers cannot wait a few weeks or a few months for the financial report because they need to run the company. So the emphasis from a managerial accounting perspective is on timeliness. I need this information as soon as possible. I need it live. I need to run the company. I can't wait. I want to know what's my inventory today. What's my supplies are today. I cannot run out of supplies because my production will stop. I need to run the company. So that's the difference between it to one is emphasis on precision. The other is emphasis on timeliness. Before we proceed I would like to let you know whether you are an accounting student or a CPA candidate to take a look at my website farhatlectures.com especially if you are an accounting student. I provide you resources such as lectures multiple choice through false that's going to help you with your managerial accounting courses financial accounting courses with a lot of resources. If you're a CPA candidate I also help you with that. If you have not connected with me on LinkedIn please do so. Take a look at my LinkedIn recommendation. Like this recording. Share it with other. It helps me a lot. Connect with me on Instagram. I'm trying to grow my Instagram followers Facebook Twitter and Reddit. Now let's talk about the focus of the financial accounting versus managerial accounting. The focus for financial accounting is the company as a whole. When you are an investor when you are a creditor you want to take a look at the whole company because when you invest you don't invest in part of the company. You don't invest in one division. You don't invest in one product. When you buy the stock or when you lend money the company you are buying the whole company. So the financial statement are for the whole company. On the other hand reports for managerial accounting is different. We focus on a particular territory, a particular product, a particular division, a particular country. Anyway we were breaking down the company's information that's used for managerial accounting. It doesn't mean for financial accounting we don't report sometime based on division but the emphasis for financial accounting is a company overall. Nature of the information. Well monetary in nature mainly monetary in nature for financial accounting. We're looking at numbers. We're looking at revenues, expenses, earnings per share, so on and so forth. Numbers on the balance sheet. It doesn't mean we provide, we don't provide non-monetary. Monetary means numbers. Managerial accounting of course they need monetary number but they also need non-monetary information. For example they need to measure the quality of the product. The rejection rate. The quality of each product that we have to rework. Well that information for example we need to rework 3% of our production. Well that's not monetary. That's non-monetary. For example we need to measure our customer service effectiveness. How effective are we? We will take surveys. Well that's not financial in nature. That's non-financial in nature. Why do we need this information for managerial accounting? Again the emphasis is to run the company, to operate the company. We need this information to make decision. Verifiability versus relevance. Well for financial accounting we emphasize verifiability and this is basically kind of reinforce the idea that it's a precision. The information has to be verifiable. If we bring two different auditors they practically come up with the same answer with the information. So we take our time into making sure those numbers are verifiable and that's why we do an audit. For managerial accounting we don't care about the accuracy more than about the relevance. How relevant is it to make our decision? We don't care whether we're using FIFO, LIFO for comparability purposes. We need to know if we have the inventory. If we have the inventory let's run the company. I don't care whether that inventory is reported under FIFO or LIFO or weighted average. That's not my concern. Time focus. Financial accounting, when you are looking at a financial accounting statement you are looking at historical data. You're looking at data that already passed. Information that happened. Usually it's old. It's old. Managerial accounting, usually you are looking at present current data and future emphasis. For example you prepare a budget. Well the budget shows you what's going to happen in the next 12 months and the budget will have so many sub budgets to make sure we are running the company and everyone is on the same page. So the information for managerial accounting is current because we need to run the company today and futuristic. We need to know what we have or what we need for the future and this information will go on various reports that we need for managerial accounting. And basically those are the main points. The difference between financial and managerial accounting differences. Once again I'm going to go ahead and invite you farhatlectures.com. If you are a student you want to take a look at this. It will help you in your studies. Good luck. Study hard accounting is worth it. This is basically an introductory course. Some of you taking this course are non-accounting major. Think about being an accounting major. Good luck. Study hard and of course stay safe.