Managerial accounting which is also known as cost accounting focuses on the provision of information to managers responsible for directing and controlling operations within an organization according to (Horngren and Foster, 1987). It is the process of identifying information, measuring, evaluating, interpreting and finally giving feedback necessary for pursuing organizational goals. On the other hand, financial accounting focuses on giving relevant information to creditors, stakeholders and other bodies outside the organization. The major difference between managerial accounting and financial accounting is that whereas managerial deals with information to the “managers within the organization, financial accounting offers information outside the organization” (Surbhi, 2014). This paper seeks to point out the difference between managerial accounting and financial accounting in relation to healthcare. In addition to that, the paper also examines the stakeholders in health care.
Most of the managerial accounting topics usually focus on analyzing product costs that are necessary for external financial reports. An example includes the income statement of the manufacturer (Horngren and Foster, 1987).This report has to include the actual cost of the products that have been sold .At the same time the actual costs in the ending inventories which are indicated in the balance sheet. The topics that managerial accounting deals with include information about the cost of products and services as well as analysis of the cost-volume profit in an organization. This information is very helpful to the managers since it is the guiding principal in setting the selling prices .The reports also help in coming up with capital and operational budgets. It is also through managerial accounting information that performance reports are generated (Surbhi, 2014). The performance reports usually compare the budgets with the actual results and the deviation recorded is what is known as variance. These reports are useful in determining profitability of territories, customers and product lines. (Horngren and Foster, 1987). Managers also use information on unit quantities, revenues, backlog of sales to plan and come up with control measures.
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Financial accounting is at times also known as financial reporting. The major aim of these reports is to provide useful information to potential and existing investors, tax authorities, creditors and lenders to assist them in decision making about provision of services and products to the organization. The information contained in the financial reports includes income statements, balance sheets and cash flow statement over a period of time. Financial reports must comply with the following qualities; first it must be relevant, reliable, easy to comprehend and should be able to be compared to the previous ones. This is to ensure that the trend is studied and meaningful conclusions can be drawn. Financial statements have three major components namely statement of cash flow, which entails inputs and outputs in cash within a given a period of time. It is usually calculated as follows, (cash inflow- cash outflow + opening balance =closing balance) (Paterson, 2014). The second component is the profit and loss statement. After calculation, if there is negative balance it is an indication of a loss, the vice versa is also true. The third component of financial reporting is the statement of financial position usually referred to as balance sheet (Surbhi, 2014). It illustrates assets and liabilities necessary for showing the financial status of the company. When the current assets and current liabilities are differentiated, the result is what is referred to as working capital. Assets are categorized into two, fixed assets and current assets. On the other hand we have long term liabilities and short term liabilities. Financial accounting is very important in any organization because it ensures transactions recorded are systematic, ascertains the results of the transactions and financial position of business. The reports also provide information that can be used for making rational decisions as well as knowing the solvency position of the organization. It is thus very evident that both Financial and managerial accounting are necessary for the progress of any organization. The managerial keeping the people within aware of the products and services offered whereas financial accounting helps maintain clear records that show the position of the organizations so that interested parties like investors can make decisions (Surbhi, 2014).
Double entry accounting is yet another term widely used .It refers to a book keeping system in which every entry recorded in an account has to involve two or more accounts. This means that every transaction needs an opposite entry in a different account. For instance when a buyer purchases an item, his/her cash at hand will reduce while on the other hand the seller will record an increase in cash but a decrease in the commodity. This type of accounting seeks to record both effects of transactions without which accounts would reflect a section of records only. The effects are usually referred to as debit and credit. They function on a duality principle in which for every debit recorded an equal credit entry is recorded as well.
Just like any other organization, the healthcare sector also has different stakeholders. First we have the patients. Not only do they pay for the system but also they are the recipient of the services. The patients have knowledge based on experiences unfortunately they are not granted the opportunity to contribute to policy making. Paterson (2014) states that the government is a major stakeholder; each territory has its own ministry responsible for formulating policies and programs. The government requires to know the financial reports so that they can make informed decisions on how best to improve the healthcare system. Thirdly we have medical professionals who are usually known as frontline workers. This is because they deal directly with the patients. They include physicians, nurses and other care givers. They are within the organization thus require managerial information to enable them ensure that the right products and correct services are delivered. The professional associations licensing bodies are also stakeholders in healthcare. They are responsible for establishing and maintain quality standards and also ensure that the codes of conduct are adhered to. Labor unions also play a significant role in making sure that the employees’ needs are met. Pharmaceutical companies and insurance companies as well (Paterson, 2014) . .
In conclusion, the healthcare system just like any organizations requires both financial and managerial accounting to effectively function and also maintenance.
References
Horngren, C. T., & Foster, G. (1987). Cost accounting: A managerial emphasis . Englewood Cliffs, N.J: Prentice-Hall.
Paterson, M.A. (2014 ). Healthcare Finance and Finance Management. Retrieved from https://books.google.com/books?id=ykf-AgAAQBAJ&pg=PA28&dq=financial+stakeholders+in+healthcare&hl=en&sa=X&ved=0ahUKEwjO8u2Zks7OAhXKExoKHWdxAN8Q6AEIJzAC
Surbhi, S. (2014). Difference between Financial Accounting and Management Accounting. Retrieved from http://keydifferences.com/difference-between-financial-accounting-and-management-accounting.html
