Get To Know the Difference between Management Accounting and Financial Accounting
Financial accountancy is a domain of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, employees, government agencies, owners, and other stakeholders. Financial accountants are required to measure and monitor agents' performance and reporting the results to decision makers.
Financial Accountants prepare accounting information for people outside the organization or not involved in the day to day running of the company; whereas, management accounting provides accounting information to help managers decide how to manage the business.
Financial Accounting can be defined as a process of summarizing financial data taken from an organization's accounting records and publishing in the form of annual reports for the benefit of people outside the organization. This stream of accountancy is governed by both local and international accounting standards.
Management accounting and financial accounting are the two main branches of accounting in general. Any data related to events, transactions and activities within an organization form the common and principal source of information for management and financial accounting.
Some of the differences between Financial Accounting and Management accounting are:
Financial Accounting presents the financial position of an organization and provides information related to revenue generation or profits to stakeholders. The focus is mainly on external information users such as primarily regulators, government and owners. On the other hand, Management accounting focuses on internal financial information, with reports prepared for internal managers, who use it to aid and facilitate planning, decision-making and control.
Management accounting is used by an organization's managers. External stakeholders do not even view management accounts. The reason being, there is no legal requirement for any organization to prepare management accounts.
Financial reports are for external users so financial reports must adhere to International Financial Reporting Standards and International Accounting Standards. So, the financial reports are standardized while management accounting formats and systems vary among and within organizations.
Management accounting has narrower focus than financial accounting. The focus is much more specific, as it deals with particular activities, sections or departments. Moreover, financial reports usually deals only with financial information whereas management accounts incorporate both monetary and non-monetary measures, i.e. financial and non-financial information.
These are some of the differences between financial accounting and management accounting.
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