Definition: Reporting of the financial position and performance of a firm through financial statements issued to external users on a periodic basis.
Keeping track of records and creating a summary of financial transactions is called bookkeeping. When this information is produced and displayed in reports for the use of the public outside the company, this process is called financial accounting.
The key difference between financial and managerial accounting is that financial accounting is aimed at providing information to parties outside the organization.
Whereas managerial accounting information is aimed at helping managers within the organization make decisions.
There are three standard reports that are created through the accounting process: The income statement, which describes the profits or losses, expenses, and gross proceeds over a given period of time.
The balance sheet, basically shows the firm’s assets (what they own) and their liabilities (what they owe) at a specific point in time. The statement of cash flow is an analysis of the flow of cash out of the firm and in.
For managerial accounting, these reports are created more often (typically monthly) for internal planning, control and decision-making. The aim of these reports in the managerial sense is to provide decision-makers with the right tools for budgeting purposes.
Reliable and relevant information on the costs of operations and on standards which are appropriate for costs to be compared are presented through such reports.