Anonymous
Nov 13, 2023
Different between financial accounting and management ?
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Nov 13, 2023
Financial accounting and management accounting are two branches of accounting that serve different purposes within an organization. Here are the key differences between the two:
1. Purpose:
- Financial accounting: It focuses on providing financial information to external stakeholders such as investors, creditors, and regulatory authorities. The primary purpose is to report the financial performance and position of the company.
- Management accounting: It focuses on providing financial information to internal stakeholders such as managers, executives, and employees. The primary purpose is to assist in decision-making, planning, and controlling activities within the organization.
2. Timeframe:
- Financial accounting: It primarily deals with historical financial data and prepares financial statements on a periodic basis, usually annually, quarterly, or monthly.
- Management accounting: It deals with both historical and future financial data. It provides real-time information to support day-to-day operations and future planning.
3. Reporting:
- Financial accounting: It follows generally accepted accounting principles (GAAP) or international financial reporting standards (IFRS) to prepare financial statements like the balance sheet, income statement, and cash flow statement.
- Management accounting: It does not have strict reporting guidelines. It focuses on generating reports tailored to the specific needs of management, such as budget reports, cost analysis, variance analysis, and performance reports.
4. Users:
- Financial accounting: The primary users of financial accounting information are external stakeholders like investors, creditors, lenders, and regulatory authorities.
- Management accounting: The primary users of management accounting information are internal stakeholders like managers, executives, and employees who need financial information for decision-making and performance evaluation.
5. Legal requirements:
- Financial accounting: It is subject to legal requirements and regulations, and the financial statements must comply with the applicable accounting standards.
- Management accounting: It is not subject to any legal requirements or regulations. The reports and information generated are for internal use only and do not need to comply with external accounting standards.
In summary, financial accounting focuses on providing financial information to external stakeholders for reporting purposes, while management accounting focuses on providing financial information to internal stakeholders for decision-making and planning purposes.
1. Purpose:
- Financial accounting: It focuses on providing financial information to external stakeholders such as investors, creditors, and regulatory authorities. The primary purpose is to report the financial performance and position of the company.
- Management accounting: It focuses on providing financial information to internal stakeholders such as managers, executives, and employees. The primary purpose is to assist in decision-making, planning, and controlling activities within the organization.
2. Timeframe:
- Financial accounting: It primarily deals with historical financial data and prepares financial statements on a periodic basis, usually annually, quarterly, or monthly.
- Management accounting: It deals with both historical and future financial data. It provides real-time information to support day-to-day operations and future planning.
3. Reporting:
- Financial accounting: It follows generally accepted accounting principles (GAAP) or international financial reporting standards (IFRS) to prepare financial statements like the balance sheet, income statement, and cash flow statement.
- Management accounting: It does not have strict reporting guidelines. It focuses on generating reports tailored to the specific needs of management, such as budget reports, cost analysis, variance analysis, and performance reports.
4. Users:
- Financial accounting: The primary users of financial accounting information are external stakeholders like investors, creditors, lenders, and regulatory authorities.
- Management accounting: The primary users of management accounting information are internal stakeholders like managers, executives, and employees who need financial information for decision-making and performance evaluation.
5. Legal requirements:
- Financial accounting: It is subject to legal requirements and regulations, and the financial statements must comply with the applicable accounting standards.
- Management accounting: It is not subject to any legal requirements or regulations. The reports and information generated are for internal use only and do not need to comply with external accounting standards.
In summary, financial accounting focuses on providing financial information to external stakeholders for reporting purposes, while management accounting focuses on providing financial information to internal stakeholders for decision-making and planning purposes.
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