Business Finance and Accounting: Differences and Users of Information

This report provides a comprehensive overview of financial and management accounting, outlining their fundamental differences, objectives, and target audiences. It begins by defining accounting and its various branches, emphasizing the distinctions between management and financial accounting. The report details the contrasting aims, regulatory requirements, perspectives, and nature of information used in each type of accounting. It also explores the different users of financial information, including investors, lenders, suppliers, customers, tax authorities, and government entities, highlighting how they utilize accounting data for decision-making. The report concludes by emphasizing the importance of both accounting systems in effectively managing a business and how they cater to diverse user needs. The report also includes a section on profit, cash flow, and working capital, explaining their differences and impacts on business operations.

Business finance and accounting

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
MAIN BODY.............................................................................................................................3
Difference between management and financial accounting...................................................3
Users of financial information...............................................................................................5
CONCLUSION..........................................................................................................................6
REFERENCES...........................................................................................................................7

INTRODUCTION
Accounting is the process of recording the financial business transactions and
analysing and interpreting the result. It has different branches which are cost accounting,
financial accounting and management accounting. In this report, the key difference between
management and financial accounting is drawn along with importance of it to different users
of financial information.
MAIN BODY
Difference between management and financial accounting
Basis of comparison Management accounting Financial accounting
Aim The management accounting
information is mainly meant
for the management for
taking informed business
decisions (Zhang and Niu,
2019).
Here, the aim is to provide
relevant information to the
external users which
includes creditors, investors,
financial institutions etc.
Regulatory requirements There is no such statutory
requirement.
It is legally required to
comply with the statutory
requirements to prepare
financial accounts for all the
organizations.
Perspective It has a future perspective. It has a historical
perspective (Schroeder,
Clark and Cathey, 2019).
Nature of information It includes both financial
and non-financial
information which can be
used in preparation of
management accounting
reports.
It considers only financial
information for preparing
statements.
Governing principles In this, there is no standard
for preparing the
management accounting
statements. Thus, it is
Financial statement is
prepared based on Generally
Accepted Accounting
Principles. It may differ

prepared as per the
requirement of the internal
management team.
from country to country by
more or less are same.
Time horizon These reports are mainly
prepared as per the need of
the management and is
focussed towards future
(Weetman, 2019).
It is prepared at the end on
the accounting period which
is usually one year which is
past.
Reporting beneficiaries The reports prepared here
are for the internal users like
directors, promoters, top
level managers etc.
It is for the outsiders such as
shareholders, suppliers,
investors, government,
banks etc (Kimmel,
Weygandt and Kieso, 2018).
Output The reports prepared under
management accounting are
for the monthly, weekly or
yearly which is used for
analysing the products,
functioning and performance
of the business.
Financial reports are
prepared which includes
income statement, balance
sheet and cash flow
statement.
Relevance of data The data of management
accounting may not be
100% verifiable. Thus, the
data used should be relevant,
timely and logical. For
example, no one can
perfectly predict sales
forecast.
Data of financial accounting
are 100% verifiable and
precise. Therefore,
everything has a
documented evidence for
providing support.
Independent audit There is no specific audit
requirement but the
management can take
initiative in order to conduct
an independent audit with
The independent audit is
mandatory for financial
accounting reports in all
countries (Voss, 2019).

the purpose of effective and
efficient management of the
business (Hoggett and et.al,
2018).
Confidentiality Management accounting
statements are confidential
in nature as it contains
internal business
information and secrets.
Financial statements are
prepared to be published
publicly and are meant for
the use of public. So, there is
no sign of confidentiality.
Segment reporting It is concerned with the
specific segment for the
purpose of analysis which
may be product line,
production unit.
It is concerned with the
whole organization and it is
compulsory in many
countries that bind
companies to do segment
reporting.
Users of financial information
Users of management accounting information
Top level managers and owners: Managers and owners uses the management
accounting information to take day to day and long-term strategic business decisions
(Difference between Financial and Management Accounting. 2020). The information
provided requires extra time and effort and expense in order to compile and review but it all
saves time of managers and owners in providing relevant information which may not be
gathered empirically.
Bankers and investors: They can also be the users of managerial accounting in case
when information is provided in background while discussing business plan or loan package.
Users of financial accounting information
Investors: They are the ones who are very much interested in knowing the
performance of the business. They mainly rely on the financial statements which are
published by the companies in order to assess the profitability, valuation and the risk
associated with their investment.

Lenders: They usually uses financial information to know the credit worthiness of the
borrower. They offer loans and other credit facilities to the companies which is
completely based on the financial position and health of the organization (Users of
Accounting Information. 2020). This can be determined by analysing the financial
ratios of the company which are made available through financial statements.
Suppliers: Like lenders, suppliers of the company are also interested in knowing the
credit worthiness of the company which is very essential for taking decision with
respect to whether to offer goods and services on credit or not. For this, suppliers
require to assess the financial information of the company to determine their growth.
Customers: Some of the industrial customers are interested in looking at the financial
information about the suppliers of the organization in order to know from where they
assess the resources required and the continuity of the same. Customers are also
interested in knowing whether the company will survive for that long in order to
honour its product warranties.
Tax authorities: These authorities will determine whether the company has disclosed
correct amount of tax (Speckbacher, 2017). Also, tax authorities conduct audits of the
tax return filed by the businesses to verify the information provided as per the
accounting records. They also verify information of suppliers and consumers to
identify the tax evaders.
Government: It ensures that the company has complied with all the relevant
accounting standards and regulations that helps in safeguarding the interest of its
stakeholders who relies on this information to taking informative decisions.
CONCLUSION
It can be summarized from the above that both the accounting system are the great
tools for effectively running the business. Management accounting is serving only the
managerial decision making but without financial accounting is would be limited or narrower
as financial accounting provides most of the information. The uses of both this information
depends upon on the need of the users of such information like management accounting
information is used by internal management team like owners, managers while in financial
accounting it is used all the outsiders such as creditor, government, investors etc.

REFERENCES
Books and Journals
Hoggett, J. and et.al, 2018. Financial accounting. Wiley.
Kimmel, P. D., Weygandt, J. J. and Kieso, D. E., 2018. Financial accounting: tools for
business decision making. John Wiley & Sons.
Schroeder, R. G., Clark, M. W. and Cathey, J. M., 2019. Financial accounting theory and
analysis: text and cases. John Wiley & Sons.
Speckbacher, G., 2017. Creativity research in management accounting: A commentary.
Journal of Management Accounting Research. 29(3). pp.49-54.
Voss, G., 2019. Information and Strategic Aspects of Financial Statements in the Assessment
of their Users. Folia Oeconomica Stetinensia. 19(2). pp.176-187.
Weetman, P., 2019. Financial and management accounting. Pearson UK.
Zhang, J. and Niu, L., 2019, May. Research on the Transition from Financial Accounting to
Management Accounting Under the Background of Big Data. In 1st International
Conference on Business, Economics, Management Science (BEMS 2019). Atlantis
Press.
Online
Difference between Financial and Management Accounting. 2020. [Online]. Available
Through:< https://efinancemanagement.com/financial-accounting/difference-between-
financial-and-management-accounting>.
Users of Accounting Information. 2020. [Online]. Available Through:<
https://courses.lumenlearning.com/suny-finaccounting/chapter/users-of-accounting-
information/>.