Difference between Financial and Management Accounting

This document discusses the difference between financial accounting and management accounting. It covers their aims, regulatory requirements, application, and users of accounting information.

Justification for the content of file B13208
Difference between Financial and Management Accounting
Link: https://efinancemanagement.com/financial-accounting/difference-between-financial-and-
management-accounting
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Points of Difference Financial Accounting Management Accounting
AIM The main aim is to
provide information
to outside parties.
Outside parties
include creditors,
investors, customers,
etc. Hence, it is
mainly aimed at
assisting investors in
making informed
decisions.
Here, the aim is
different than
financial accounting.
Generally,
management
accounting
information is meant
for management to
make informed
business decisions.
REGULATORY
REQUIREMENTS
It is a mandatory
requirement for every
public organization
by the government.
Thus, they are
governed by
Accounting Standard
Boards, companies’
law and government.
It is at the discretion
of management.
There is no
mandatory
requirement but still,
institutes like CIMA,
ICWAI, etc provide
some framework and

formats.
Link: https://www.wallstreetmojo.com/financial-accounting-vs-management-accounting/
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Basis for Comparison Financial Accounting Management Accounting
Inherent meaning
Classifies, analyses, records, and
summarizes the financial affairs
of the company.
Management accounting helps
management make effective
decisions about the business.
Application
Financial accounting is prepared
to show forth the accuracy and
fair picture of financial affairs.
Management accounting helps
management to take meaningful
steps and strategize.
Users of Accounting Information
Link:https://courses.lumenlearning.com/suny-finaccounting/chapter/users-of-accounting-
information/
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External Users
Typically called financial accounting, the record of a business’ financial history for use by
external entities is used for many purposes. The external users of accounting information fall
into six groups; each has different interests in the company and wants answers to unique
questions. The groups and some of their possible questions are:
 Owners and prospective owners. Has the company earned satisfactory income on its
total investment? Should an investment be made in this company? Should the present
investment be increased, decreased, or retained at the same level? Can the company
install costly pollution control equipment and still be profitable?
 Creditors and lenders. Should a loan be granted to the company? Will the company be
able to pay its debts as they become due?

 Employees and their unions. Does the company have the ability to pay increased
wages? Is the company financially able to provide long-term employment for its
workforce?
Users of financial information
Link: https://www.accountingtools.com/articles/2018/1/26/users-of-financial-information
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There are many possible users of the financial information generated by a business. The
following list presents the more likely users:
Customers. Major prospective customers will want to review a firm’s financial information to
see if it is stable enough to be a long-term supplier, or if the firm has the financial resources to
complete a major project on their behalf.
Employees. Employees want to review the information in order to make decisions about
whether the company is a stable employer. Providing this information to them can increase their
level of interest and participation in the business.
Governments. The government jurisdictions in which a company does business may request the
information in order to determine whether the firm paid the required amount of taxes.