Financial managers have to balance the need to borrow versus the needs of production. They need to make sure that they've gotten the best deal possible to borrow the money and ensure that the money is being used carefully within the organizations and not wasted on things that the organization doesn't need.
On one hand, it may be a very smart idea to put the solar panels on, because the company will save a lot of money upfront on its electrical bills. It will also be able to pay back the money that was borrowed to install the panels in the first place fairly quickly.
On the other hand, if the company isn't garnering savings in its anticipated electrical bills and it will take a very long time to pay that money back--with the interest continuing to accrue in the financial reports--a financial manager may want to rethink the solar panels as an option.
A financial manager has four main responsibilities:
There are several different types of financial managers.
|Types of Financial Managers||Description|
Certified Public Accountant
|A CPA is licensed to work by the state, and they work with something called Generally Accepted Accounting Practices, or GAAP. This is the standard that accountants use so that everyone's books look basically the same, that what appears in one financial record will translate directly to a financial record in another company. They are generally involved in the tax part of the business, as well as financial auditing, to ensure that things are going smoothly.|
Chief Financial Officer
|A CFO is involved in the big picture, 30,000-foot view of financial planning. They are considered part of executive management. They are the overseers of the entire financial department, so everything that happens from a financial standpoint in the whole company is their responsibility. That sounds like a pretty big job, doesn't it?|
|Chief Accounting Officer||A chief accounting officer oversees accounting operations only, but it's the accounting for the entire firm. Again, they are considered a part of higher management, though not necessarily executive management. Chief Accounting Officers report directly to the Chief Financial Officer.|
Now, a CPA can perform any one of these roles, and these roles differ quite a bit in how they are organized in a business, based on the size of the organization. For instance, in a small business, you may have one person that is both the CFO and the CPA. Or, a company may outsource the CPA, and not have a CFO at all. Therefore, depending on the size of the business, these roles can vary dramatically.
Now let's take a look at how financial accounting and managerial accounting differ from each other.
4a. Financial Accounting
Financial accounting is the sphere of accountancy that is focused on the creation of financial statements for stakeholders outside the organization. These are the folks who prepare the financial statements for the people who are outside looking in--the shareholders and perhaps the owners of the company.
Financial accounting is focused on the external user. These could be stockholders, unions, creditors, the government, or possibly even suppliers. Financial accounting is responsible for preparing income statements and balance sheets, which we'll discuss in a different tutorial. Typically, these reports are filed annually, such as the annual report to the shareholders, which is also sent to the government through the Securities and Exchange Commission, or the SEC.
4b. Managerial Accounting
Managerial accounting is the sphere of accountancy that is focused on the creation of financial statements to assist organizational managers in making decisions. It is a little different because it is internally focused and not necessarily meant for the people that are outside of the business.
These are the managers that are making decisions and running the business every day, and they can be used to help set performance goals. Where do we want to be? How well are we doing in getting there?
They want to make sure that they're filing the reports, but there is no release set schedule. The reports can be filed in a variety of time frames, such as weekly, monthly, biweekly, every two or three months, or semiannually--whatever it takes to make sure that the business is staying on top of its performance goals.
The area of managerial accounting also monitors trends or predictions, forecasting where a business wants to be in the future, based on the trends seen within the finances.
Source: adapted from sophia instructor james howard