Financial Accounting versus Management Accounting: A Comparison

This report provides a comprehensive comparison between financial and management accounting. It defines both types of accounting, emphasizing financial accounting's focus on providing accurate and fair reviews of a company's financial health for external stakeholders, and management...Read More

Business Finance

Explaining the difference between management and financial accounts and its usefulness to
users of the financial information................................................................................................3
REFERENCES................................................................................................................................7

Explaining the difference between management and financial accounts and its usefulness to users
of the financial information
Accounting referred as the practice of recording, summarizing and classifying financial
terms of business transactions & an event along with interpretation of the results. It is been used
by an enterprise for keeping a record of their respective business transactions. FA & the MA are
seen as the 2 main classification of an accounting. FA stresses or emphasize in providing a true
& the fair review regarding financial health or state of an enterprise to several parties (Erwin,
2019). On contrary, MA aimed at facilitating the both quantitative and the qualitative
information to the managers in order to help them in making decisions & maximizing profits of
the company.
Financial accounting- It is reflected as the purest type of the accounting within which
adequate record is kept & financial data are been reported, for providing accurate and the
material information to their stakeholders (Azar, Zakaria and Sulaiman, 2019). It is mainly based
on several assumptions, convention and the principles such as materiality, going concern,
realization, consistency, conservatism, matching, historical cost and accrual. Final reports
comprises of the B/S, cash-flow statement & income statement that are framed in accordance to
the guidelines facilitated by pertinent statute.
MA- It also called as the managerial accounting as it is an accounting for the manager
that helps within management of an entity for framing the policies & forecasting, controlling &
planning the routine business operations of company (Weetman, 2019). In this qualitative as well
as quantitative data are been captured & assessed by MA. The main functional area of MA does
not limits to facilitating cost or only the financial information. It extracts appropriate and
significant information from the financials and the cost accounting to enable management in
establishing goals, decision making and budgeting. Under this, accounting could be done as pr
need of management which is weekly, quarterly, monthly etc. & there does not exist any format
based on which it needs to be reported.
Basis FA MA
Definition It refers to accounting system
which emphasize on framing of
final reports of an enterprise in
However, it is a system of
accounting that provides
appropriate information to

order to facilitate financial
information to users.
managers in making plans,
policies & the strategies for
smooth running of the business.
Compulsion It is seen as compulsory for the
companies to prepare the
financial accounts under financial
accounting.
On other hand, Preparing reports
under MA is not compulsory for
companies.
Information It is stated as an accounting
branch which keeps record of all
financial or accounting
information of company
(Difference between financial
and management accounts,
2018).
It is considered as that branch of
the accounting that records and
reported for financial as well as
non-financial information of an
enterprise.
Objective The main objective of FA is to
provide financial information to
the external users.
On other side, the major or
foremost purpose of MA is to
helps management in procedure
of decision making & the
planning process through
facilitating detailed or in-depth
information on several matters.
Format There is a specified format given
by IFRS and GAAP in respect of
framing the final reports.
However, there is no any
particular or specified format to
frame reports under management
accounting.
Time frame Final reports are formulated at
year end of an accounting period
that is usually seen as one year.
Under this reports he framed as
per needs and the requirements of
an entity.
Users The main users under financial
accounting are seen as external &
internal parties.
In this the main user is counted
as internal management of the
firm.

Reports It facilitates the summarized
reports regarding financial state
of an enterprise.
Under MA, complete and the
detailed report about several
information is included.
Auditing & Publishing The financial statements prepared
under financial accounting are
needed to be audited and
published by the respective
statutory auditors.
On other side, under MA the
reports are neither published and
nor been audited by the statutory
auditors.
Usefulness of management accounting to users
 MA helps the managers in making daily and long term strategic decisions and provides
information in form of managerial reports that in turn takes extra expense and work for
reviewing and compiling. However, such report saves the time of managers by
facilitating important information to them in relation to operational performance of the
company.
 In the business, employees also makes use of managerial accounting by giving them
training to understand the final reports and access to the relevant reports (Weetman,
2019). This helps the business in getting the workers engaging in front lines and by this
employees could track ongoing information about regional sales to the material waste and
could also monitor the changes and improvements.
 Investors and the bankers can also act as the user of MA, specifically when such reports
are been facilitated as the background information in the business plan and the package.
Usefulness of financial accounting to the users
Financial account facilitates wealth of information which is useful to several users of the
financial information.
 Investors require financial or accounting information for deciding that whether they must
continue or withdraw the investment made by them as they are concerned about the risk
& return relating to their respective investments.
 Lenders needs financial information as it helps the in determining whether the loans and
the interest would be paid when it gets due.

 It helps the creditors in understanding and assessing short term liquidity of business and
in measuring that the company is capable in meeting its debts.
 Employees needs information regarding stability and the continuing profits of a business
and are crucially interested in information about the employment prospects &
maintaining pension funds and the retirement benefits (Azar, Zakaria and Sulaiman,
2019).
 Government agencies are also interested in the financial information as it helps them in
analyzing that whether the company s making payment of its tax obligations within the
time frame and functioning its business in compliance with the rules and standards.

REFERENCES
Books and journal
Weetman, P., 2019. Financial and management accounting. Pearson UK.
Azar, N., Zakaria, Z. and Sulaiman, N. A., 2019. The Quality of Accounting Information:
Relevance or Value-Relevance?. Asian Journal of Accounting Perspectives. 12(1). pp.1-21.
Erwin, K., 2019, October. Relationship Management Accounting and development of
information technology. In IOP Conference Series: Materials Science and Engineering (Vol.
648, No. 1. p. 012033). IOP Publishing.
Online
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