Differencesbetween financial and management accounting Financial and management accounting are bothimportant tools for a business, but serve deferent purpose.
When talk aboutfinancial accounting, financial accounting is a process of all the businessoperating and recording financial transaction in a correct manner. The mainobjective of financial accounting is to provide information about theprofitability and financial position of an enterprise but it does not present insuch a way to is to assists the management in planning day to day operations.When consider about the management accounting,management accounting is the process of identification, measurements,preparations, analyze, interpretation and communication of financialinformation used by management to take various decisions for the enterprise. Differences of the management and financialaccounting can be divided under main 3 areas. Those are primary users (externalvs. internal users), purpose (generalizes Vs specialized information), andfocus (historical vs. future perspective).1.
- Thesis Statement
- Structure and Outline
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Primary users ( external vsinternal users)Financialaccounting is meant for those external to the organization,who need to get a view inside. These people are externals to the organization, · Investors · Suppliers and customers · Employees and unions · Creditors · Tax authorities and other regulators Managementaccounting is meant for those internal to the organization,who need information to achieve organization goals. Management accountingprovide some other information to this talking about people,· CEO· Department/ division managers · General managers 2. Purpose( generalized vs. specialized information) Financialaccounting use the same three or four financial statement tomeet the need of a wide variety of users.
Thus, the information is generalizedand aggregated and always follows a similar format. It is also, normally,public information and removes some of the proprietary details and specifics.Those three of financial statements are,· Income statement· Balance sheet · Statement of cash flows · Statement of retained earnings Managementaccounting reports are normally only produced tomeet the needs of a specific decision maker. Thus the reports are specializedwith a level of details to make a specific decision. Management accountingreports are also normally private so nothing need to be concealed. 3.
Focus(historical vs future perspective)Financialaccounting is based on historical transactions. Fortransactions to be recorded within a financial accounting system they must havebeen based on past events. Financial accounting is primarily backward – looking/ historical.Managementaccounting while still sometimes using historical data,is meant to be used for decision making for the Future. Many managementaccounting reports have future orientated data within them, for example withinbudgets.
Management accounting is far more forward looking than financial accounting.