Difference Between Financial and Management Accounting
Added on 2020-10-22
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FinanceLeadership Management
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MANAGING FINANCIALRESOURCES
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1LO1.............................................................................................................................................11 Difference between financial and management accounting.....................................................12 Purpose of various financial statements...................................................................................33 Different group of stakeholders and their information needs..................................................5LO21 Calculation of the different profitability and liquidity ratios of Stratford Yachts Ltd..........62. Report on overall performance ...............................................................................................8CONCLUSION ...............................................................................................................................9REFERENCES..............................................................................................................................11
INTRODUCTIONFinancial resources available to a business are in the form of cash, liquid securities andcredits lines. These are important for operations of a business. The sufficiency of resources isalso essential for effective and efficient operations. Financial management is an effective andefficient management of funds of an organisation. It is done to achieve all objectives of anorganisation. The management of financial resources involves planning, organising, controlling andmonitoring. In the present assignment, detailed discussion about financial position of StratfordYachts Ltd is done. A report on profitability and liquidity is presented which is measuredthrough different ratios. The same is also compared with the industry average ratios.LO11 Difference between financial and management accountingFinancial accounting- Financial accounting is a procedure of summarizing, recordingand reporting of financial transaction of business operations. These transactions are recorded toprepare the financial statements of business which includes profit and loss account, balance sheetand cash flow statement (Chiaramonte and Casu, 2017). This accounting is done to provideinformation to management and people outside the organisation such as investors, lenders,suppliers, tax authorities and other stakeholders. It is a means of measuring economic performance of a business. This comprises a systemof monitoring and controlling of money, its inflow and outflow. This analyse the operatingperformance of the company. For accounting different financial transactions, a business usesaccounting principles (Beatty and Liao, 2014). Financial accounting can be done on accrual basisand cash basis or a combination of two. Generally, it is done on accrual basis that is transectionsare recorded as money accrues/earned not when it is actually received. Management Accounting- Management accounting is a process of providing periodicalfinancial and statistical information to the business managers so they can make day-to-day andshort-term management decisions (Del, Negro and Sims, 2015). This provides reports andinformation to the internal stakeholders of an organisation such as employees, directors,managers. The report of management accounting includes cash availability with company,generation of sales revenue, fund available for accounts payable and status of accountsreceivables. This is a forward looking and aconfidential reports. There are no principles and basis1
to formulate this. This analyses operating performance of a company. For accounting differentfinancial transactions, a business uses accounting principles. These are prepared and based ondecisions of the management (Garven, 2015). The management accounting involves decision-making, systematic planning and performance of management systems, making available expertknowledge for financial reporting. it also assist the management in formulating andimplementing the organisational strategy.Difference between Financial and Management AccountingFinancial accounting is different from management accounting and are as follows 1.Requirement- For a business, financial accounting is mandatory while managementaccounting is optional but it is generally done to evaluate and enhance organisationalperformance.2.Focus on reporting- Financial accounting focuses on creation of financial statements ofbusiness from monetary transactions (Financial statement of non-profit organisation.2018). Managerial accounting is focused on operational reports available within anorganisation only. 3.Standards- For financial accounting to comply with GAAP and other standards arecompulsory. For management accounting, there are no such standard, so they are madeby management on their discretion.4.System- Financial accounting does not consider the overall system of an organisation; itonly has one criteria of generating profits (Kim and et.al., 2016). Conversely,management accounting takes into consideration overall aspects of the business and isinterested in enhancing profits of company.5.Time period- Financial accounting has a historical orientation as it is concerned withtransactions already done. Management accounting addresses budgets and forecast thefuture for the growth and development of a company.6.Valuation- Financial accounting addresses proper valuation of the assets and liabilitiesso it involves impairment and revaluation of the same. Management accounting is onlyconcerned with productivity of the business and its enhancement.7.Timing- Financial accounting requires presenting financial statements at the end ofaccounting period (The difference between financial and managerial accounting. 2018).Management accounting may issue as many reports as it deems fit 2
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