Why is accounting needed Week 1 How would healthcare companies operate without accounting Why do we need financial and managerial accounting and what are the fundamental differences between the two You must respond to at least two of your classmates postings to receive full credit Accounting allows a company to keep track of all its financial transactions from which financial and managerial reports are produced These reports provide a way for both external and internal stakeholders to judge a company s financial position and integrity and assists manager in business decisions Financial accounting allows external stakeholders to view the financial standing of a company External stakeholders include investors creditors lawyers financial analysts new reporters and others The four financial statements that make up financial accounting are the Income Statement Statement of Changes in Stockholders Equity Balance Sheet and Statement of Cash Flows Edmonds Edmonds McNair Olds Tsay Milam 2007 Managerial accounting is used by internal stakeholders managers and employees to assist them in managerial or procedural decisions and changes Edmonds et al 2007 The main difference between financial accounting and managerial accounting is that financial accounting is mandatory Different governmental and regulatory agencies require a company to prepare financial statements Managerial accounting is designated by the company It is completely voluntary no regulatory or governmental agency requires it so it is up to the company s management to decide how it is used Financial 2008 The second difference between the two is that managerial accounting is usually focused on future activities Output from managerial accounting is usually used to forecast future trends from which managers can adjust current business practices Financial 2008 Third data from financial accounting needs to be accurate and verifiable In managerial accounting it is not as important some data may even be simple calculations or forecasts of different market trends Financial 2008 Fourth precision on financial accounting is much more important than in managerial accounting although in financial accounting it is acceptable to round numbers that are in the millions Managerial accounting isn t always based on financial transactions they can include survey results quality or performance results Financial 2008 Finally financial accounting is based on the performance of the company as a whole while managerial accounting is usually based on targeting either a single business unit category or function Financial 2008 Healthcare companies able to operate without accounting In a hospital setting the billing and record keeping procedures are extremely complicated since they involve so many entities the patient physician physician s assistant hospital staff insurance company and government agencies In addition most of these practices are regulated by different government agencies that keeping track of everything would be impossible References Edmonds T P Edmonds C D McNair F M Olds P R Tsay B Y Milam E E 2007 Survey of Accounting Boston MA McGraw Hill Learning Solutions Financial Accounting Vs Managerial Accounting or Difference between financial and Managerial Accounting 2008 Retrieved May 27 2009 from Introduction to Managerial Accounting http www accountingformanagement com financial accounting vs managerial accounting ht m Latchana E H 2009 Economic Stimulus Package and COBRA Retrieved June 2 2009 from About com http humanresources about com od benefits a cobra changes htm