Importance of Financial and Management Accounting in Business Organizations

BUSINESS AND
MANAGEMENT

Table of Contents
INTRODUCTION...........................................................................................................................3
1.1. Understanding basic theory of financial accounting and management accounting..............3
1.2. Understanding practice of financial accounting and management accounting.....................4
1.3. Understanding basic term & concept of financial and management accounting..................4
2.1. Explanation of process of accounting to a business organization........................................5
2.2. Importance of financial and management accounting to business organization..................6
3.3. Understanding of current issues in accounting.....................................................................7
3.4. Impact of current issues on accounting profession...............................................................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................1

INTRODUCTION
Financial accounting and management accounting both are crucial part of business without
which the managers can’t make proper, best and appropriate decision. The report will cover the
theory, practice, basic term & concept of financial and management accounting. The report will
also discuss the process of accounting along with the importance of financial & management
accounting to business organization. Lastly, the report will also cover the current issues in
accounting and how it affects the accounting disciplines.
1.1. Understanding basic theory of financial accounting and management accounting
Basic theory of Financial accounting: Financial accounting means a process of recording,
summarizing and reporting the financial transaction occur within the business and is related to
business. For example, the financial accounting is based on historical transaction theory and
double entry system theory. It is because the financial accounting considers the transaction which
are basically occurred in past (Rieg, Zarzycka and Dobroszek, 2021). The company double entry
theory of financial accounting state that every debit has an equal and opposite credit which
means debit is equal to credit. In financial accounting, the financial statement is prepared on the
basis of accrual and cash principle. This both principle uses double entry theory to accurately
record financial transaction and present reliable and fair annual reports.
Basic theory of Management accounting: Management accounting is a process of
providing decision-making information to managers based on the financial and non-financial
data provided by financial accounting. They use the financial statement prepared by financial
accountant and also analysis the historical transaction to predict the future. For example, the
management accounting is generally based on cause and effect theory with the help of which
they can plan and formulate the policies of company (Maheshwari, Maheshwari and
Maheshwari, 2021). With the help of the report prepared by management accounting, the
managers of company take decision such as buy or make etc. They use various management
accounting techniques such as variance analysis, standard costing, budgeting etc. in order to
prepare best report. Management accounting is basically a futuristic approach that examine the
cause and effect relationship between accounting information’s.