Financial Accounting as Compared to Managerial Accounting

Video Transcription

Hi, I'm Jeff. And in this lesson, we'll learn about the role and responsibilities of a financial manager. And we'll discuss the different types of financial managers, as well as the difference between financial and managerial accounting. So let's get started.

In an organization, financial managers must balance the needs to borrow money to meet the goals of production, while still ensuring the money is being used carefully within the organization. A financial manager will work to obtain the best deal when borrowing money, as well as the appropriate length for the financing.

For example, if an organization decides that it wants to shift to solar power for some of its operations, then the financial manager will need to weigh the cost of financing the construction and change necessary to make the shift to solar against the savings possible over a period of time due to using solar. Only when this information is quantified will the financial manager give a recommendation to move forward.

Financial managers have four primary responsibilities in an organization. They are responsible for determining the long-term investments. This might be equipment, office space, production improvements, manufacturing processes, or any other investment that benefits an organization over multiple years.

Getting the funds for the investments. As we have discussed, a financial manager will analyze, recommend, and obtain financing for an organization. Overseeing the organization's day-to-day financial activities.

All management of expenses and income goes through the financial manager. And helping manage the risk the firm takes. We'll discuss risk in a later lesson, but all financial managers evaluate and advise an organization on the risks associated with finance.

Now let's discuss the different types of financial managers in an organization. There is the certified public accountant, or CPA. This person is licensed by the state in which they operate. And they work with General Accepted Accounting Principles, otherwise known as GAAP. They are generally involved in the tax part of an organization's operation, and will also be involved in any financial auditing process.

The Chief Financial Officer, or CFO. The person in this role is often part of the executive management team. And their role is to handle the financial planning of an organization. They will usually oversee the entire financial department.

Or Chief Accounting Officer. This person oversees the accounting operations only. Though they are often part of higher management, they are usually not part of executive management, like a CFO. This role often reports to the CFO.

Since the CPA describes a person with a license, a CPA can be in any of these roles. In a small business, these roles might be outsourced to an external CPA. Or a person might be both the CFO and a CPA. In larger business, these roles are often separated into different individuals.

It's also important to distinguish between the two types of accounting in an organization. First, financial accounting. This is the sphere of accountancy that is focused on the creation of financial statements for stakeholders outside the organization. This accounting is used by external users of the organization's financial information, such as stockholders, unions, creditors, and the government.

Financial accounting prepares reports such as income statements and balance sheets. And the reports are typically filed annually or quarterly.

Managerial accounting is the sphere of accountancy that is focused on the creation of financial statements to assist organizational managers in making decisions. Users of managerial accounting are internal, such as the executive management team. The reports created by managerial accounting can be used to set performance goals or to evaluate trends, predictions, and forecasting. These reports are filed for a variety of time periods and are often requested on an as-needed basis. Not every manager will need financial accounting, but all managers and all departments will need managerial accounting for their work.

OK, excellent job. In this lesson, we learned about the role of a financial manager and reviewed their responsibilities. We discussed the different types of financial managers. And we talked about the difference between financial and managerial accounting.

Thanks for your time, and have a great day.