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  Difference Management and Financial Accounting

Difference Between Management Accounting and Financial Accounting

Accounting is generally seen as having two different strands. These are:

  • Management accounting, that seeks to meet the accounting requirements of managers; and
  • Financial accounting, that seeks to meet the accounting requirements of all of the other users that are identified before in the chapter (see Figure 1.1).

The variation in their targeted user groups has led to every strand of accounting developing along different lines. The major areas of variations are as follows.

  • Nature of the reports produced:

Financial accounting reports aim to be general purpose, i.e. they consist of financial information which will be helpful for a broad array of users and decisions than being particularly designed for the requirements of a specific group or set of decisions. Alternatively, Management accounting reports are frequently specific-purpose reports. They are intended with a specific decision in mind and/or for a specific manager.

  • Level of detail

Financial accounting reports give users with a broad indication of the performance and position of the business for a period. The result, information is comprehensive and detail is frequently lost. Though, management accounting reports frequently provide managers with significant detail to assist them with a specific operational decision.

  • Regulations

Financial accounting reports, for several businesses are matter to accounting regulations that try to make sure they are generated with standard content and in a standard format. The law and accounting rule makers force these regulations. As management accounting reports are for only internal use, from external sources there are no regulations concerning the form and content of the reports. They can be planned to meet the requirements of particular managers.

  • Reporting interval

For several businesses, financial accounting reports are generated on a yearly basis, even though some large businesses generate half-yearly reports and some produce quarterly ones. Management accounting reports might be generated as often as needed by managers. In several businesses, managers are given with specific reports on a weekly, daily, or monthly basis that permits them to check progress often. Additionally, special-purpose reports will be ready when needed (for instance, to calculate a proposal to purchase a piece of equipment).

  • Time orientation

Financial accounting reports reflect the position and performance of the business for the past period. Basically, they are backward looking. Alternatively, Management accounting reports frequently give information that concerning future performance along with past performance. It is an over simplification, though, to propose that financial accounting reports never incorporate expectations that are concerning the future. Sometimes, businesses will provide projected information to other users in an effort to increase capital or to fight off unwanted takeover bids. Even preparation of the routine financial accounting reports generally needs making some judgements about the future.

  • Range and quality of information

Financial accounting reports highlights on information which can be quantified in monetary terms. Management accounting also produces this types of reports, but is also more probable to produce reports which consist of information of a non-financial nature, like physical volume of inventories, number of new products launched, number of sales orders received, and physical output per employee and so on. Financial accounting places greater importance on the make use of objective, verifiable proof while preparing reports. Management accounting reports might make use of information which is less objective and verifiable, but however provide managers with the information they required. From this we can observe that than the financial accounting the management accounting is less constrained. It might take place from a range of sources and use information that comprise varying degrees of reliability. The lone real test to be applied while assessing the value of the information produced for managers is whether or not it enhances the quality of the decisions made.

The variations among management and financial accounting imply that there are variations between the information requirements of managers and those of other users. When variations undoubtedly available, there is also a good deal of overlap among these requirements.

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