Accounting is a decent career path to becoming a successful CEO, Finance Director or even CEO. Most individuals who want to enter the field must take various examinations to learn the basics. During this process, they must study several compulsory and optional courses. They can pass their mandatory exams and obtain a degree with this knowledge. In some cases, they must also acquire experience to get a license.
Accounting can be a highly successful career choice. Some individuals may study the basics and work as a bookkeeper for companies. However, this path requires minimal knowledge of the basic accounting concepts. Some accountants may also choose a specialized area to reach higher positions. However, it may require more work and effort. On top of that, they may also go through more scrutiny during their jobs.
Accounting does not constitute a single subject. It refers to a broad field that combines various other forms. Usually, the term accounting is synonymous with financial accounting. However, companies may also require cost or managerial accounting experts. Each path has its own advantages and disadvantages. However, accountants may wonder if they can take both simultaneously. Before discussing that, it is crucial to understand what they are.
What is Financial Accounting?
Financial accounting is a branch of accounting that involves recording, summarizing and reporting financial transactions. This branch relates to how companies accumulate information in their accounting systems. Consequently, it also covers the preparation of financial statements, which usually include four reports. Financial accounting is a part of every company and its finance department. Usually, it follows the same process regardless of the entity.
Financial accounting starts with a business transaction. This transaction becomes the base for the amounts input into the accounting system. Usually, companies require a source document to enter data into their financial accounting cycle. This process begins with the books of prime entry. These books form the base for the information entered into the general ledgers. For most companies, these ledgers are the primary source of financial information.
From the general ledgers, companies prepare the trial balance. Before doing so, however, they must summarize every ledger. Companies segregate each account in the general ledger based on specific criteria. While accounting standards guide companies on achieving that, companies can also have some input. At each period-end, companies close the general ledger accounts.
The balance from the general ledger becomes a part of the trial balance. This report separates credit and debit balances in different columns. Usually, assets, expenses and drawings fall under the debit side. In contrast, capital, income and liabilities are a part of the credit side. The trial balance may go through various changes before reaching a final form. This form forms the base for the information entered into the financial statements.
The ultimate objective of financial accounting is to prepare and report financial statements. These include the balance sheet, income statement, cash flow statement and statement of changes in equity. Usually, this preparation process follows a specific order. Regardless of that, companies report distinct information in each financial statement. Companies present these reports to their stakeholders, who can use them to make decisions.
What is Managerial Accounting?
Managerial accounting is a branch of accounting like financial accounting. However, it involves identifying, measuring, analyzing, interpreting and communicating financial information. On top of that, it does not entail performing those steps to report information externally. Instead, it covers the flow of financial information within a company. Managerial accounting involves providing critical information to managers for better decision-making.
Managerial accounting does not involve the same steps as financial accounting. While companies may use the information presented in the latter internally, both processes differ. Usually, managerial accounting does not require the same strict criteria as financial accounting. Nonetheless, it is a critical part of the decision-making process within an organization. Using financial accounting only does not provide the information necessary to enhance those decisions.
Managerial accounting does not aim to prepare any specific reports. Instead, its goal is to improve the quality of information flowing within a company. Managerial accounting does not focus on presenting information externally. Therefore, it has lower standards that dictate how companies can use it. The process may differ from one company to another. Nonetheless, the base for the overall accounting remains the same.
Managerial accounting involves analyzing various events and operational metrics. Based on these, companies can convert financial data into useful information. This information can allow management to make better decisions, resulting in higher profitability. Primarily, managerial accounting works behind the scenes to help companies improve their processes and generate higher profits. However, it may be more complex than financial accounting.
Overall, managerial accounting uses various tools and techniques to enhance decision-making. It aims to provide detailed information about a company’s operations. This process involves analyzing several factors, such as operations, products, facilities, etc. Some of the information generated through this branch can also help produce the financial statements. However, the process for each accounting branch differs significantly.
Can You take Financial and Managerial Accounting at the same time?
Those wanting to study accounting may know financial and managerial accounting differ in several aspects. Each branch has its benefits and quirks. However, taking both simultaneously may not be recommended, especially for beginners. Although financial and managerial accounting differs significantly, they have some overlaps. Studying managerial accounting requires accountants to have some accounting knowledge. However, the opposite may not apply.
Accountants must understand how accounting works. Usually, they must learn what debits and credits are and how information correlates. On top of that, they must know what financial information is and its sources. Most of this knowledge is available through courses that teach financial accounting. When studying managerial accounting, candidates may not learn the same basic concepts. For those who already know those concepts, the decision is straightforward.
Usually, financial accounting is more prevalent compared to managerial accounting. The former branch has more popularity and can fetch better positions. However, if an accountant does not understand managerial accounting, they may suffer at their jobs. Both areas complement each other and can be crucial in becoming a complete accountant. Therefore, studying both areas helps accountants achieve more.
While financial and managerial accounting may overlap, taking both simultaneously may not be a smart choice. Most schools structure courses to teach the concepts of financial accounting first. Once they learn those, students can work toward studying managerial accounting. Rarely, some may also offer students to take both simultaneously. Usually, these courses teach basic accounting concepts beforehand.
Overall, taking financial and managerial accounting simultaneously is possible and allowed. However, studying both at the same time may not be a recommended approach to accounting. Most courses require students to learn financial accounting concepts first. Once they do so, they can move toward taking managerial accounting. Nonetheless, if students already understand the basics of the field, they can take both simultaneously.
Accounting is a decent career path. However, it has various branches which students may find confusing. In most cases, accountants study financial and managerial accounting to complement their careers. Some courses may allow students to take both branches simultaneously. However, it may not be a wise choice to do so. Students must learn the basic accounting concepts first before starting managerial accounting.