Key Differences Between Financial and Management Accounts

This document discusses the key differences between financial and management accounts, including their aims, regulatory structure, time perspective, users, output, independent audit, and confidentiality. It also explores the users of financial information and how it is useful for decision-making.

Business
Finance

INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Key differences between financial or management accounts......................................................1
Users of financial information.....................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Business finance relates to corporate capital and cash. Finance is the backbone of enterprise
to buy properties, commodities, raw materials and to the other movement of economic activity is
needed. Business finance can be described as 'giving money when a company needs it’. Every
enterprise needs money (Cole, 2018). Money required at the moment the business starts is
needed. Once the firm is in operation it's also needed. When an organization increases in size and
expands, the company requires financing. These reports cover some topics that is about
differences between financial or management accounting and also evaluate the usefulness for
users of financial information.
MAIN BODY
Financial accounting is the method of producing financial reports that are used by
businesses to show their financial results and status to stakeholders outside the business,
including shareholders, creditors, distributors and clients. It is one of the most important
differences from managerial accounting which, on the other hand, involves the preparation of
regular reports and projections for managers within the firm.
Management accounting includes offering adequate information for decision making
process, scheduling, expense management and performance review (Dijkhuizen And et.al.,
2018). It turns data into facts, expertise, and knowledge regarding the operations of a
corporation. This is one step better than paying for expenses. Management accounting seeks to
learn the reasons for income or loss and studies the factors that affect the efficacy of decision
taking.
Key differences between financial or management accounts
Key basis of
difference
Financial accounts Management accounts
Aim Main goal is to deliver information
to third parties. Outside parties are
shareholders, owners, customers etc.
Therefore, it is mainly intended to
help investors make educated
decisions.
The aim here is differ from that of
financial accounting.
Management accounting data is
usually intended for executives to
make more informed strategic
decisions.
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Regulatory It is a statutory obligation by the
government for any public agency.
They are governed by the Standard
Boards of Accounting, the law of
companies and politicians.
It is at Management's control.
There is no obligatory necessity
but institutes such as CIMA,
ICWAI, etc. also provide some
structure and configurations
Time prospect Financial accounting time period is
'past'. It is usually a one-year record.
It does not have a fixed time
period but it focuses primarily on
the future.
Users This is made to available for
external or external parties. External
parties such as shareholders,
vendors, clients, state, institutions,
etc.
Statements prepared within
management accounting are
beneficial to internal stakeholders
such as CEOs, administrators,
sponsors and senior management,
etc.
Output Statements for financial accounts
consist of report of income and loss
report, balance sheet and statement
of cash flow.
Accounting reports for
management are also the periodic,
weekly or annual review of
goods, geographic regions,
activities, etc.
Verifiable Financial accounting information is
100 per cent reliable and provable.
All then has proof to back it up
(Pakroo, 2018).
Accounting control data is not
always verifiable at 100 per cent.
The data ought therefore to be
valid, timely and reasonable. No
one can predict the revenue
perfectly, for example.
Independent audit For most countries, independent
auditing of financial statements
records is compulsory. CPA
performs these audits in the USA for
example and Chartered Accountants
(CA) perform these audits in India.
There is no clear criterion for a
stand-alone audit. But
management should take the lead
to perform an independent audit
at its option for the sake of
successful and effective
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management.
Confidential Financial accounting statements are
documents which are publicly
distributed and are meant only for
the public. So, there is also no
confidentiality problem here.
The management accounting
documents are intended for
management and the main issue is
privacy of the statements. It's
because there are corporate
secrets in them.
Users of financial information
In context of organization, there are several users of financial information who looking
forward for such information and make their future decisions accordingly. Some of the users are
as follow:
Customers: Potential clients may want to review the financial records of a company to see
whether a long-term supplier is reliable enough or whether the company has the resources to
undertake a large project on their side.
Employees: They would like to verify the information to decide if the firm is a secure employer.
(Tabellini, 2020). Providing them with this knowledge will raise their level of involvement and
company involvement.
Management team: The reporting entity's managers need financial information in order to
make organizational and strategic decisions on how to strengthen the firm's business
performance, financial condition and cash flows.
Investors: Investors want to review the details and determine if the company can continue
to develop and grow well to support their decision to invest, or whether they will give out their
stake to a third party.
Government: Authorities where a company is doing business may ask for the details to
decide if the company paid the correct amount of income tax.
Above mention are the some examples of financial information users, with the help of
financial report internal or external parties able to evaluate the business wealth and its current
position in the market. This information useful for managers to make strategies and investors to
evaluate that future investment is beneficial or not.
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CONCLUSION
From the above discussion it has been observed that finance is essential for organization because
without it, organizations unable to perform its operational activities to meet their daily
requirements. In organization, management required some information to take managerial
decisions and it will be possible through financial and management accounting which help the
company to compare or evaluate the performance on the basis of available information.
Company’s required to prepare financial statements for its users because they looking forward
for financial information to make future decisions regarding investment or to take other
managerial decisions
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REFERENCES
Books & Journals
Cole, R. A., 2018. Bank credit, trade credit or no credit: Evidence from the Surveys of Small
Business Finances. Trade Credit or No Credit: Evidence from the Surveys of Small
Business Finances (July 31, 2018).
Dijkhuizen, J. And et.al., 2018. Well-being, personal success and business performance among
entrepreneurs: A two-wave study. Journal of Happiness Studies. 19(8). pp.2187-2204.
Pakroo, P., 2018. The small business start-up kit: A step-by-step legal guide. Nolo.
Tabellini, M., 2020. Racial heterogeneity and local government finances: Evidence from the
great migration.
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