difference between management accounting and financial accounting - assignment


Added on  2019-09-30

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The difference between financial and managerial accounting with regard to user groups andtime horizons is explained below.Criteria 1 - User Groups:Financial Accounting would be best described as external accounting since it catersprimarily to information needs of external users such as suppliers, government agencies,investors, creditors, etc. and is bound by the applicable financial reporting framework such asIFRS or country-specific GAAP. In contrast, Managerial Accounting can be described asinternal accounting which caters to the information needs of internal users such asexecutives, managers, and workers besides providing a lot of flexibility in gathering bothfinancial and non-financial information and presenting the same in a way customized to theneeds of the user of such information. Thus, while a lender or a government agency may notbe interested in knowing the value of intellectual capital of the firm, the managers of the firmmay find this to be an interesting metric and may wish to attach a number value to theintellectual capital of the firm. [1] This is where the managers of the firm turn to informationand techniques provided by managerial accounting. Criteria 2 - Time Horizons:Financial Accounting is always based on transactions or events that have already occurred. Thus, in terms of time horizon, financial accounting is solely concerned with the past. Besides, financial accounting fails to provide insights for the longer term. However, Managerial Accounting is very flexible with the time horizon since it uses information from transactions that occurred in the past and also provides projections that look into the future. The projections could be for both short-term as well as for long-term, and this is particularly useful for small and medium sized business trying to better their operations through use of accounting and financial data for short-term and long-term planning. [2]References:1.Tayles,M., Bramley,A., Adshead,N., & Farr,J. (2002). Dealing with the management of intellectual capital.Accounting, Auditing & Accountability Journal,15(2), 251-267. doi:10.1108/095135702104255742.López, O. L., & Hiebl, M. R. (2015). Management Accounting in Small and Medium-Sized Enterprises: Current Knowledge and Avenues for Further Research.Journal of Management Accounting Research,27(1), 81-119. doi:10.2308/jmar-50915The chief accountant must have a clear understanding of both financial and managerial accounting since both serve certain different purposes.Financial accounting saves managers time as it only offers a bird’s eye view of the financial performance of the organization. However, management accounting, given its inter-linkages with economics, operations, engineering and other functions, gives information which is more detailed with regard to specific products, departments, regions, entities, and even employees. This facilitates comparison between products, departments, regions, entities, etc. and helps with analysis of variances that show up when managers take time to conduct detailed analysis.

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