Difference between Management and Financial Accounting

This report discusses the difference between management accounting and financial accounting, including their objectives, nature of information, reporting beneficiaries, relevance of data, audit requirements, confidentiality, preparation period, and output. It also explores the users of financial information, such as investors, bankers, suppliers, government, and customers. Overall, both accounting frameworks are essential for successfully managing a business.

Business Finance

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
MAIN BODY.............................................................................................................................3
Difference between management and financial accounting...................................................3
Users of financial information...............................................................................................5
CONCLUSION..........................................................................................................................6
REFERENCES...........................................................................................................................7

INTRODUCTION
The core purpose of accounting is to record the business transactions and then
analysing and interpreting the same for better decision making. With the use of accounting
information, financial reports of the business is prepared which are used by both internal and
external users. In this report, a distinction is drawn between management accounts and
financial accounts. It also covers the usefulness of the financial information to the users of it.
MAIN BODY
Difference between management and financial accounting
Basis of comparison Management accounting Financial accounting
Meaning It is the accounting system
which provides all the
important and relevant
information to the managers
for making policies and
plans.
Financial accounting
focusses on the preparation
of the financial statement
and other key document of
an organization in order to
provide financial
information to the interested
parties.
Objective The objective is to provide
assistance to the
management in its business
planning and
implementation process
(Moretto, 2019).
In financial accounting, the
objective is to provide
relevant information to the
users such as investors,
financial institutions,
creditors etc.
Nature of information It takes into account both
financial and non-financial
information which can be
used by the management in
its planning process.
It considers only financial
information for preparing
annual reports.

Reporting beneficiaries This report is useful in for
the internal users of the
organization such as owners,
directors, promoters, senior
level managers etc.
The financial statements are
mostly for the use of
outsiders which includes
suppliers, investors,
customers, government etc.
Relevance of data The data used in the
management account is not
100% verifiable, therefore, it
is collected based on the
relevance and timeliness.
For instance, the prediction
about sales cannot be perfect
and accurate.
The data used in financial
accounting is 100% reliable
and it can be easily
verifiable as everything is
completely documented
which can be sued as a
support (Tenhunen, 2018).
Audit There is no specific audit
requirement but the
management can take
initiative in order to conduct
an independent audit with
the purpose of effective and
efficient management of the
business.
It is mandatory in case of
financial accounting to
conduct an independent
audit.
Confidentiality The data used and
statements prepared under
management accounting are
confidential in nature as it
contains the information
which are internal to the
business and cannot be
disclosure to outsiders
(MENG, 2017).
Since, the financial
statements are prepared to
be finally published publicly
which is completely meant
for public use. Thus, there is
no sign of confidentiality.
Preparation period These reports are prepared
as per the requirement for
the management and also
It is mostly prepared at the
end of the accounting year
which is usually one year.

there is no set format or
guidelines for doing it. It can
be prepared at any point of
time.
Output The reports prepared under
it are based on monthly,
weekly or yearly for
analysing the functioning
and the performance of the
business.
The financial reports are
prepared which includes
incomes statement, balance
sheet and cash flow
statements.
Users of financial information
The financial statements of the company is used by different types of users which
dependents upon their needs. It helps in taking better decisions. Some key users of financial
statements are stated below.
Investors
Investors utilizes financial statements in order to analyse the funding of the company.
It helps in determining about the organization's solvency position concerning long term and
short term needs of the business (Prasad and Chand, 2017). They consider in evaluating the
amount of debt for measuring the amount of obligation in the organization's capital structure
and the assets available to take care of those obligation successfully and effectively. Better
solvency position helps in getting more investment from the investors.
Bankers
The financial organizations additionally utilize financials statements to recognize the
capacity of the organization to take care of its debt obligation. In view of which decision is
made whether to give further loans and advances to the organization or not. It is valuable for
the banks and other financial institutions.
Suppliers
The suppliers of the organization are also interest in looking at the financial report of
the organization so as to know the credit value of it, which is very essential for taking
decision with respect to whether to offer product and services based on credit or not. For this,

suppliers are required to analyse the financial data of the organization so as to decide the
development possibilities of the business. Likewise, it also helps in deciding if the
organization is capable to pay back the money on time or not.
Government
Government utilizes financial statements data with the reason to know whether the
organization is following set guidelines and policies (Henderson, 2019). Government can
likewise utilize this data for carrying out the tax assessment and administrative arrangements.
Government has not a lot to do with the financial information of the organization they are just
keen on knowing whether organization has complied with all the important legal and
statutory requirements.
Customers
Few of the industrial customers are also interested in looking at the financial
information about the suppliers of the companies so as to know from where they gather
required resources. Customers are also interested in knowing whether the company will
survive for that long in order to honour its product warranties.
CONCLUSION
It can be very well summed up from the above that both the accounting framework
are the important tools for successfully managing the business. The management accounting
is serving just the administrative aspects however without financial accounting it would have
been restricted or limit as financial accounting gives the vast majority of the data. The
employments of both this data relies upon the need of the clients of such data like
management accounting data is utilized by internal management team which includes
proprietors, directors, top level managers etc. while in financial accounting it is utilized all
the both internal and external user, for example, lender, government, financial specialists and
so on. Thus, both the system is essential as each is having its own importance which cannot
be denied.

REFERENCES
Books and Journals
Henderson, E., 2019. Users’ perceptions of usefulness and relevance of financial statement
note disclosures and information overload. International Journal of Business,
Accounting, & Finance. pp.41-56.
MENG, F., 2017. The Path of Enterprise Financial Accounting to Management
Accounting. DEStech Transactions on Social Science, Education and Human Science,
(adess).
Moretto, E., 2019. Financial Reporting and Management Accounting: can Management
Accounting provide support and value for a high quality Financial
Reporting? (Bachelor's thesis, Università Ca'Foscari Venezia).
Prasad, P. and Chand, P., 2017. The changing face of the auditor's report: implications for
suppliers and users of financial statements. Australian Accounting Review. 27(4).
pp.348-367.
Tenhunen, M. L., 2018. THE IMPORTANT NEED OF GENERAL ACCOUNTING AND
MANAGEMENT ACCOUNTING. Euromentor Journal-Studies about
education. 9(04). pp.37-43.