Financial Accounting in Malaysia | Need to Know for Business Owners and Why Is Managerial Accounting the Best Accounting Term to Understand for Company Growth

What Is Financial Accounting and Why Is It Not Enough for Your Business? How Is It Different From Managerial Accounting? Educate Yourself Now

Understanding the different terms of accounting is an important part of being financially literate, understanding finance and running your business. As business owners finances can be a daunting task, as we want to focus on growing our business and be a good leader for our employees.

In fact, when I mention ‘Financial Accounting’, more often than not, I will get a distasteful response or look. Even some business owners don’t know the difference and are not very keen on details, numbers, charts and understanding the meaning of financial accounting.

However, financial accounting is one of the most important aspects of running a business. From a small business, small-medium companies, large organisations and multinational companies, financial accounting is deemed crucial.

If you are a business owner like I, or if you are in a key decision-making role in your company, it would be best to know about financial accounting. What is it and why is it so important?

What is Financial Accounting in Malaysia?

Financial accounting is the method of systematically tracking the company’s financial transactions.

These transactions are meticulously recorded, summarised and presented in the Financial Statement of Accounts.

In simpler words, financial accounting helps you to keep score of your company’s income and expenditure. Hence, you will know if you are on the right track or not.

In Malaysia, some aspects that come under financial accounting include bookkeeping, accounts payable, accounts receivable, payroll processing, management accounting and tax preparation.

The financial accounting statements include income statements, balance sheets, and cash flows.

Financial accounting strictly follows a standard set of practices that makes it highly reliable as a tool that helps company managers, investors and stakeholders to make informed decisions for the company.

The Importance of Financial Accounting and Reporting in Malaysia

Your company’s financial health is reflected in a financial accounting statement.

This statement provides valuable elements to investors and creditors to evaluate the performance of your company. With clear-cut information such as outstanding debt and equity components, budget allocations, future financial roadmap, and cash flow tracking can be done without any discrepancies.

Apart from that, financial accounting elaborates on operating results and expenditures. While the balance sheet typically shows the company assets, liabilities and equity, there is not much information regarding the operations of the company and the effects to the finances.

With financial accounting, stakeholders will be able to see the sales, expenses, profits and losses during the operation period. As a result, improvements or cut backs can be done accordingly.

Cash flow is another detail that is covered under financial accounting definition.

Investors often turn to the cash flow statement to know about a company’s actual cash value, this is important to know how well the company is generating a cash flow before investing.

The cash flow statement shows the cash availability to pay for expenses and the ability to purchase new assets and drive innovation. Companies with healthy cash flow show healthy growth and can be a pulling factor for investors.

In short, financial accounting is a critical tool to gain oversight of a company’s financial health for all stakeholders involved. But, is that all that is necessary for the wellbeing of your company? Is it enough for you to hire an accounting firm to produce your financial reports for your business?

Unfortunately, the answer is NO. Financial accounting is important, but equally important is to know managerial accounting.

What Is Managerial Accounting and Why This Is Your Accounting Tool for Growth?

Managerial accounting is also known as cost accounting or management accountancy.

Managerial accounting deals with compiling all the relevant accounting information for managers in the company to make decisions and plan for the future of the business.

As such, managerial accounting is identifying, analysing, interpreting and communicating relevant information to managers.

The data comprises all fields of accounting and not just financial accounting.

Some of the elements that come under managerial accounting include margin analysis, constraint analysis, capital budgeting, inventory valuation and product costing, as well as trend analysis and forecasting.

The Importance of Managerial Accounting

Managerial accountants produce managerial accounting reports that are very detailed and specific.

This is because managers require all the tiny details to make decisions internally to achieve internal targets.

Managerial accounting helps managers or us business owners to plan. With information regarding products, market reach and regional information obtained through surveys, budget analysis and competitor analysis, managers will be able to plan for the business.

Apart from that, managerial accounting also helps in coordination between managers of various departments in the company. For instance, goal setting requires coordination between the production, purchasing, finance, sales, and marketing departments. With specific data required based on the needs of every department, the company’s target can be set and achieved accordingly.

An added advantage of managerial accounting is the ability to organise.

Managerial accounting will clearly define and explain the authority and responsibility of key executives in a company.

As a result, there would be no confusion regarding scope and goals.

Financial Accounting vs Managerial Accounting

Now that you know what is financial accounting and managerial accounting, you would know that both are required for the smooth running of your business.

However, there are vast differences between the two. More importantly, could you do without one or the other?

First and foremost, financial accounting is done based on accounting standards and is sent to external parties like investors and media while managerial accounting does not need to conform to specific standards and is used internally in the company.

Next, financial accounting reports past data and analyses historical trends while managerial accounting is the process of focusing on creating plans, estimating budgets and projecting targets.

The timing for each of the accounting reports is also different. Financial accounting is done when each accounting period has ended.

Meanwhile, managerial accounting needs to be frequent as managers need up-to-date information to make relevant decisions.

Best of the Both for Smooth Running of Business

Despite the size of your company, having a balanced financial accounting and managerial accounting is crucial to ensure your company gets all the right accounting data and information.

Especially if you run a startup company, you will need financial accounting to provide you with the right information about your company so that you can talk to your new potential or existing investors and stakeholders about expansions or new projects.

On the other hand, you need specific managerial accounting so that you can communicate clearly with your internal staff to ensure monthly, quarterly and annual target setting is done with the right information at the right time.

Accounting firms in Malaysia often provide both financial accounting services and managerial accounting services.

Outsourcing these services from trustable accounting firms will lead to long term growth for your business. Get quotes from several accounting firms, do your research, compare their packages, convey your concerns and make the right decisions for your business. After all, the right numbers will lead to better decisions and consequently, great business growth.

Let us help you get off to a good start, submit a request and we will connect you with up to 3 accounting professionals that can help you with financial accounting or managerial accounting.

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