Contrast on Financial Accounting and Management Accounting

Question

Write down a brief contrast on the term ‘Financial Accounting’ and ‘Management Accounting’?

Answer 1

1) Financial Accounting reports are employed by outside party’s like’s creditors, shareholders, tax authorities and so on. While Management Accounting reports are employed by managers inside the organization for planning, controlling and taking decisions.

2) In Financial Accounting, only past financial transactions are considered and don’t consider non financial transactions while in Managerial Accounting emphasis is on decisions influencing the prospect, therefore it might consider prospect data as well as non financial factors.

3) Maintenance of financial accounting records and preparation of financial statements is a lawful need while Management Accounting is not at all lawful need. Furthermore, these systems have their own reporting formats.

4) In Financial Accounting, accuracy of information is needed while in Management Accounting timeliness of information is needed.

5) In Financial Accounting, only summarized data is made for the whole organization while in Management Accounting detailed reports are made about departments, products, customer and employees.

6) Preparation of Financial Accounting is depends of usually admitted Accounting Principles while Management Accounting doesn’t follow such principles to make reports.

7) Financial reports created by the Financial Accounting are needed to be correct while correctness is not the precondition of management accounting.