Financial Accounting vs. Management 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 Accounting | Management Accounting | |
Objectives | The main objectives of financial accounting are to disclose the end results of the business, and the financial condition of the business on a particular date. | The main objective of managerial accounting is to help management by providing information that is used to plan, set goals and evaluate these goals. |
Audience | Financial accounting produces information that is used by external parties, such as shareholders and lenders. | Managerial accounting produces information that is used within an organization, by managers and employees. |
Optional? | It is legally required to prepare financial accounting reports and share them with investors. | Managerial accounting reports are not legally required. |
Segment reporting | Pertains to the entire organization. Certain figures may be broken out for materially significant business units. | Pertains to individual departments in addition to the entire organization. |
Focus | Financial accounting focuses on history; reports on the prior quarter or year. | Managerial accounting focuses on the present and forecasts for the future. |
Format | Financial accounts are reported in a specific format, so that different organizations can be easily compared. | Format is informal and is on a per department/company basis as needed. |
Rules | Rules in financial accounting are prescribed by standards such as GAAP or IFRS. There are legal requirements for companies to follow financial accounting standards. | Managerial accounting reports are only used internally within the organization; so they are not subject to the legal requirements that financial accounts are. |
Reporting frequency and duration | Defined - annually, semi-annually, quarterly, yearly. | As needed - daily, weekly, monthly. |
Information | Monetary, verifiable information. | Monetary and company goal driven information. |
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