Financial Accounting is the original form of accounting that deals with recording business transactions and summarizing the data into reports, which are presented to the users so that financial decisions can be made rationally. On the other hand, management accounting is a new field of accounting that studies managerial aspects. It deals with the provision of financial data to the company’s management so that they can make rational economic decisions. Show Financial accounting emphasizes on giving true and a fair view of the financial position of the company to various parties. On the contrary, management accounting aims at providing both qualitative and quantitative information to the managers, so as to assist them in decision making and thus maximizing the profit. This post explains the difference between financial accounting and management accounting in detail. Content: Financial Accounting Vs Management AccountingComparison Chart
Definition of Financial AccountingFinancial Accounting is the purest form of accounting. It deals with proper record keeping, preparation of financial statements and reporting of financial data, to provide relevant information to its users. It is based on:
Financial statements are prepared as per Schedule III of the Companies Act, 2013. Conventionally, financial accounting aims to ascertain information regarding the performance, profitability and position of the organization based on the business activities undertaken. But recently information relating to cash flows and earning per share is also provided, with the help of a financial statement.
The main objective of financial accounting is to ascertain the results of business operations of the business, in terms of profit or loss for the period. Also, it tends to provide information relating to the company’s financial standing on the last day of the accounting period. Also Read: Difference Between Accounting Concept and Accounting Convention Definition of Management AccountingAnother name for management accounting is managerial accounting. It is the accounting for managers that facilitates management in formulating policies, forecasting, planning and controlling the deviations. It captures and analyses both quantitative and qualitative information. Any format that is simple and understandable can be used to prepare management reports. It can include tables, charts, graphs, etc. for a better presentation. Simply put, Management Accounting is a process that involves the preparation of management reports and accounts to provide accurate and timely information, that managers require for decision-making purposes. Further, depending on the requirement of the management, these reports can be prepared, – daily, weekly, monthly or yearly. There is no format set on the basis of which it is to be reported. Management Accounting is concerned with the use of accounting information collected using various accounting methods for purposes like:
The functional area of management accounting is not limited to the provision of financial or cost information only, rather, it extracts the relevant information from different activities undertaken during the course of business so as to assist the management in budgeting, setting goals, decision making, etc.
Also Read: Difference Between Accounting and Accountancy
As we have discussed, the basic meaning of the two types of accounting, let’s understand the difference between financial accounting and management accounting:
Similarities
Functions of Financial Accounting
Also Read: Difference Between Financial Accounting and Cost Accounting Functions of Management Accounting
Also Read: Difference Between Cost Accounting and Management Accounting ConclusionFinancial accounting is helpful in the proper record keeping of numerous business transactions. Further, it facilitates the comparison of the performance of two periods of an entity or between the two entities. Conversely, management accounting is helpful in analysing the performance so as to make the required strategy or formulate such policies so that organization can succeed. |