This article seeks to explain the main difference between financial accounting and management accounting or managerial accounting.
DIFFERENCE NO 1:
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Financial accounting |
Management accounting |
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Principal objectives |
Stewardship of business for benefit of shareholders |
Seek to improve economy, efficiency and effectiveness of operations |
As we know Financial accounting mainly focus on periodic reporting of accounting information, as required by statute for shareholders, government agencies (most notably the Inland Revenue) and other parties external to the business.
DIFFERENCE NO 2:
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Financial accounting |
Management accounting |
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Time horizon |
Past |
Not only look at the Past, but the Present and the Future which affects the operation of company. |
Financial accounting is predominately based upon past transactions and events. One of more predominant convention is the assertion of the historical cost concept.
DIFFERENCE NO 3 AND 4
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Financial accounting |
Management accounting |
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Report recipients |
External/outsiders namely the shareholders and government (tax) |
Internal parties like directors and company managers |
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Financial accounting |
Management accounting |
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Outputs |
Summary (usually annual) -profit and loss account, balance sheet &cash flow statement |
Detailed monthly and annual management accounts showing results by product and function ad hoc reports |
There is a statutory requirement for companies to prepare annual financial statements. The financial statements includes the profit and loss account, balance sheet, statement of equity and cash flow statement. These statements reveal the monetary performance and value of the company.
The reports are critical as if without accurate and independently verified accounting statements, it would be very difficult to attract funds for investment from either the stock market or from financial institutions such as banks or venture capitalists.
DIFFERENCE NO 5:
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Financial accounting |
Management accounting |
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Regulating framework |
Accounting concepts (as laid down by the Accounting Standards Board) plus statutory requirements of the Companies Acts |
None prescribed, although the guidance and formats of the CIMA Terminology tends to be followed in most organisations |
The financial statements prepared by the Financial Accountants will embraced many tedious accounting concepts/convention stipulated by the Accounting Standards and local Companies Acts.
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