Comparing Financial Accounting & Management Accounting

[amandeep kathuria]

Comparing Financial Accounting & Management Accounting

[amandeep kathuria]

There is a number of differences between financial accounting and management accounting which falls into these areas: –

a) Financial Accounting reports on the result of an entire business whereas management accounting focuses on the specific areas as well. For example- Management accounting focuses on profit by-products, consumer’s behavior and so on.

b) Financial Accounting tells the organization about the profit that has been earned by the organization in last financial year but management accounting points out the problem that was faced in the last financial year and derive solutions to make sure that it will not be repeated again in next year.

c) Statements which are prepared by the financial accounting system will be useful for the internal as well as external users. For example- the Balance Sheet is also used by the investor. Whereas statements prepared by the management accounting will be used internally. For example- Standard costing done by the system will be useful for the management as they can see whether they are in line or not.

d) Financial Statements are prepared on the basis of the guidelines and principles whereas there is no need for the management accounting system to follow any principle to prepare statements.

e) Financial accounting pays no attention to the overall system that a company has for generating a profit, only its outcome. Conversely, managerial accounting is interested in the location of bottleneck operations, and the various ways to enhance profits by resolving bottleneck issues.

f) Financial Accounting System looks back i.e. past year to prepare the financial statements. For example, the Balance Sheet is the outcome of the performance of the company in the last financial year. Whereas Management accounting may involve in making a budget for the company which is future-oriented.

g) Financial Accounting System present financial statements at the end of the financial year. Whereas Management accounting system presents the statement throughout the year to the management.

h) Financial accounting addresses the proper valuation of assets and liabilities, and so is involved with impairments, evaluations, and so forth. Managerial accounting is not concerned with the value of these items, only their productivity.

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