Differences between Financial Accounting and Management Accounting

Differences between Financial Accounting and Management Accounting

It is important to understand that both financial and management accountings are vital tools for business; however, these tools serve different purposes. First, financial accounting entails preparing financial statements for use by the shareholders, government authorities, creditors, and other external users. The financial report provides detailed information to the external users on how the business enterprise has used resources during a particular time; hence, they can make sound economic decisions (Thukaram, 2003).  Management accounting focuses on preparing reports and supplying information for managers within the organization. The accounting system generates information that is used by members of the management at different levels (Thukaram, 2003). Second, the accounting method used in financial accounting is a double-entry system whereby the business transactions are recorded, classified and summarized. On the other hand, management accounting does not use the double-entry system. With the management accounting, the data is gathered for small or large segments of the company and the organization can use other measures for different activities. The data obtained should be useful for management purposes.

Third, regarding time span, the data and statements from financial accounting are created for a definite period. Usually, the organization develops it a year or a half-year. Moreover, it is required that the organization should develop and present the financial statement at a regular time interval (Ryan, 2004). With management accounting, the organization will prepare and present report and financial statements whenever needed. For instance, the organization can prepare reports on a daily, weekly or monthly basis (Ryan, 2004). Similarly, the frequency at which the reports are prepared depends on the planning, controlling and decision-making needs.

Ryan, B. (2004). Finance and accounting for business. London: Thomson Learning.

Thukaram, R. M. V. (2003). Management Accounting. New Delhi: New Age.

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