How the financial management being differentiate over management accounting and financial accounting?

Management accounting is a field of accounting that analyzes and provides cost information to the internal management for the purposes of planning, controlling and decision making.

Management accounting refers to accounting information developed for managers within an organization. CIMA (Chartered Institute of Management Accountants) defines Management accounting as “Management Accounting is the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of information that used by management to plan, evaluate, and control within an entity and to assure appropriate use of an accountability for its resources”. This is the phase of accounting concerned with providing information to managers for use in planning and controlling operations and in decision making.

Managerial accounting is concerned with providing information to managers i.e. people inside an organization who direct and control its operations. In contrast, financial accounting is concerned with providing information to stockholders, creditors, and others who are outside an organization. Managerial accounting provides the essential data with which organizations are actually run. Financial accounting provides the scorecard by which a company’s past performance is judged.

Because it is manager oriented, any study of managerial accounting must be preceded by some understanding of what managers do, the information managers need, and the general business environment.

 

 

 Financial AccountingManagement Accounting

 

Format:

 

Financial accounts are supposed to be in accordance with a specific format by IAS so that financial accounts of different organizations can be easily compared.

 

No specific format is designed for management accounting systems.

 

Planning and Control:

 

Financial accounting helps in making investment decision, in credit rating.

 

Management Accounting helps management to record, plan and control activities to aid decision-making process.

 

External Vs. Internal:

 

A financial accounting system produces information that is used by parties external to the organization, such as shareholders, bank and creditors.

 

A management accounting system produces information that is used within an organization, by managers and employees.

 

Focus:

 

Financial accounting focuses on history.

 

Management accounting focuses on future.

 

Users:

 

Financial accounting reports are primarily used by external users, such as shareholders, bank and creditors.

 

Management accounting reports are exclusively used by internal users viz. managers and employees.

 

Department:

 

preparing financial accounting is the work of finance department.

 

managerial accounting is not specific task of particular department. co-ordiantion of all department creates management accounting.

 

Report frequency:

 

well defined - annually, semi-annually

 

whenever needed - daily, weekly, monthly.

 

Mandatory Vs. Optional:

 

Preparing financial accounting reports are mandatory especially for limited companies.

 

There are no legal requirements to prepare reports on management accounting.

 

Time span:

 

Financial accounting statements are required to be produced for the period of12 months.

 

No specific time span is fixed for producing financial statements.

 

Monetary Vs. Non-Monetary:

 

Most financial accounting information is of a monetary nature.

 

Management accounting information may be monetary or alternatively non monetary.

 

Objectives:

 

The main objectives of financial accountng are :i)to disclose the end results of the business, and ii)to depect the financial condition of the business on a particular date.

 

The main objectives of Management Accounting are to help management by providing information that used by management to plan, evaluate, and control.

 

Legal/rules:

 

Drafted accounting GAAP - General Accepted Accounting Procedure.

 

Drafted according to management suitability.

 

Accounting process:

 

Follows a full process of recording, classifying, and summmarising for the purpose of analysis and interpretation of the finnancial information.

 

Cost accounts are not preserved under Management Accounting but analyses necessary data from financial statements and cost ledgers.

Center of importance:

 

the financial accounitng , the origin of preservation of knowledge gives emphasis on recording keeeping on a whole firm basis for the purpose of decisions by all the users of accouning information, both external and internal.

 

Management accounting uses cost data for provision of information for strategic management decisions. It is mainly concerned with the provision of help to the managers to asses them in the process of decision making and design business strategies.

 

Segment reporting:

 

Describe whole organization.

 

Only covered part of organization (dept) - production department.

 

  

Hope you find it usefull

Management and Accounting are two different subjects, hence financail management is financail part of overall management of a company or organization; whereas Management Accounting includes HR, Assets and other resources required in the operation of the company except finances and Finacial Accounting is budgeting, capital investment and profit and loss as may be shown on the Balance Sheet of the company.