Chapter 6 - Finance and Accounting

Abstract

Finance and accounting are important in the documentation of the value created by the firm. In general, the two types of finance relevant to the technical executive are financial accounting and managerial finance. In financial accounting, the audience is generally investors, analysts, and/or government bodies, and the accounting represents a historical report of the company over a given time period (hence it is “backward looking”). Financial accounting is generally performed using a set of rules (generally accepted accounting principles, or GAAP). In contrast, in managerial accounting the audience is typically internal, and the results are used to plan for the future (thus it is “forward looking”). Tools for both of these types of finance include the balance sheet, the income statement, and the cash flow statement, from which managers can glean information helpful in decision making processes.