Business Finance Report: Comparing Financial and Management Accounts

This report provides a detailed comparison between financial and management accounts within the context of business finance. It begins by defining both types of accounts and then proceeds to outline their key differences, including their purpose, the mandatory nature of financial accounts versus the optional nature of management accounts, the principles used in their formulation, the time frame they cover (past versus future), the types of outputs they generate, their respective uses within a business organization, the techniques employed, and the interested parties involved. The report emphasizes that financial accounts are primarily for external users, while management accounts are primarily for internal use. The report then discusses the importance of both types of accounts for various stakeholders, including their role in decision-making, assessing profitability, facilitating comparisons, and informing future policies and tax decisions. The report concludes that while both are essential accounting tools, they differ significantly in their objectives, data collection, and user base, yet both contribute to effective financial management and decision-making. This report is a valuable resource for students seeking to understand the fundamentals of financial and management accounting. Find more resources like this on Desklib, a platform offering past papers and solved assignments.

BUSINESS FINANCE
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Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
TASK1.............................................................................................................................................3
Differences between financial accounts and management accounts...........................................3
Uses of financial and management accounts for users................................................................5
CONCLUSION................................................................................................................................6
REFRENCES...................................................................................................................................7
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INTRODUCTION
Business finance is a part of management activities in which manager take decision regarding
their future investment project on the basis of identifying financial as well as managerial
accounting statement. For this purpose managers use financial and manager accounts. This
report is prepared on the basis of providing knowledge reading main reasons of differences
between financial and management accounts,. These reports also interpret uses and importance
of financial and management accounts for internal as well as external users.
TASK1
Differences between financial accounts and management accounts
Financial accounts Theses accounts refers as those accounts when help in recording the financial
information in systematic way. Facial accounting is combination of profit and loss, balance
sheets. These are useful for providing financial information to external users.
Management accounts: It refers as those accounts which prepared for help in managerial decision
making process; data collected from these accounts are useful for managers to take vital decision
regarding business organization (Paugam and Ramond,2015).
Difference between financial and management accounts are mention below
Basis Financial accounts Management accounts
purpose These accounts are formulated
for collect essential
information regarding
monetary transaction in a
systematic way.
Management accounts are
used for record, collect and
represent accounting
information in a way through
which they take accurate
judgment
Dictatorial needs Facial accounts are mandatory
require for every business
organization. As theses
accounts are treated as proof
during audit process.
It is not necessary to use
management accounts for
business organization. Theses
accounts are prepared for
better managerial process.
Only manufacturing industries
require as mandatory form to
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prepared theses accounts.
Main principle For formulation of balance
sheets and profit and loss
statements, it is required for
accountant to follow all the
rules of GAAP.
Accountants of business
organization prepared
accounts by using
management accounting tools
without following any special
guideline.
Time Financial accounts are
prepared on the basis of past
calculations (Abroud,
Choong, Muthaiyah and Fie,
2015).
These accounts are used and
prepared for future calculates
of data.
Output Financial accounts are
provides balance sheets and
profit and loss accounts which
use for determining profits and
financial position of
organization at annually basis.
Management
accounts like, standard
costing, process costing,
accounts are provides cost
value of production process
within quarterly, half yearly
and monthly basis.
Use Business organizations use
financial accounts for
preparation of final reports
which interpret every essential
information to their external
party in brief manner.
Managers prepared
management accounts for
determination of their pricing
policies, cutting their cost, of
manufacturing, identify cost of
management of inventories
and prepared budget by using
management accounting
reports.
Technique Financial accounts are used
Breakeven point, marginal
techniques, ratio analysis, and
Management accounts are use
standard costing, process, job
costing for finding cost.
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trends analysis techniques. Economic order quantity,
average order period, stock
analysis, Key performance
Indicators, benchmarks for
identification of cost and
management of inventories
and performance
measurement(Harjoto, Kim,
Laksmana and Walton, 2019).
Interested parties Financial accounts are
prepared for external users
which consider all those
organizations and personals
which directly and indirectly
affect organization decision
and profits by their actions.
Theses include shareholder,
financial institutions, banks,
and government local
authorities. Security market
companies.
Managers use management
account to provide
information for internal users,
workers, employers,
managers, essential
information regarding
company’s performance and
policies.
Uses of financial and management accounts for users
Users of business organization play vital role in success of business organization. The
sustainability of an organization is depends on the perceptions of external and internal users.
Following are the importance of these accounts for external as well as internal users are describe
below
Taking decision: Users use financial and management accounts to take decision regarding heir
investment purpose. By analysing the financial account external users can analyse conditions of
organization.
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Recognition of prosperity: Internal users use management accounts to find the profit of each
production and batch process, on the other side, profit and loss account are also helpful in
determining profits and balance sheets also helpful for indentifying assets and liability level of
company. By identifying these accounts users can identify future profitability rate of business
Comparison: Financial accounts are helpful for shareholders or other external users to compare
the profitability and efficiency rate of companies by comparing their financial accounts. Even
they also use standard costing accounts to find differences of past period cost and current cost of
manufacturing.
Future policies: By reviewing management and final accounts managers and shareholders take
decision for their future policies to investment in company or not. Manager takes future decision
by identifying cost and risk of future projects. They use marginal techniques to find out best
proposals(Xi-lan, 2015).
Taxation decision: Government authorities take decision regarding tax on the basis of
identifying the final accounts of company. Even these accounts are the proof that organization
follow ethical rules and pay their tax liability on regular basis.
CONCLUSION
From the study of this report it has been concluded that for effective run of an
organization manager use accounting tools, managers uses financial and management accounts
through which they can able to systematically record each transaction and interpret those
transaction in effective manner . Financial, and management accounts are interrelated but due to
their objective, techniques of working, collection of data and i and users of theses accounts are
differ thus they both consider as separate part of accounting. But financial and management
account both help internal and external users for analysis the financial performance of
organization and help in taking decision regarding their future investment. These accounts also
useful in risk measurement process.
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REFRENCES
Books and journals
Paugam, L. and Ramond, O., 2015. Effect of impairment‐testing disclosures on the cost of equity
capital. Journal of Business Finance & Accounting, 42(5-6), pp.583-618.
Abroud, A., Choong, Y.V., Muthaiyah, S. and Fie, D.Y.G., 2015. Adopting e-finance:
decomposing the technology acceptance model for investors. Service Business, 9(1),
pp.161-182.
Harjoto, M.A., Kim, D., Laksmana, I. and Walton, R.C., 2019. Corporate social responsibility
and stock split. Review of Quantitative Finance and Accounting, 53(2), pp.575-600.
Xi-lan, Z.H.A.O., 2015. Discussion on Accounting Objective in China. Journal of Shanxi
Finance & Taxation College, (3), p.14.
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