Business Finance: Financial and Management Accounting Comparison

This report provides a comprehensive comparison between financial accounting and management accounting. It highlights the key distinctions in their objectives, users, principles, and the nature of the information they present. Financial accounting focuses on providing information to external parties like investors and creditors, adhering to GAAP and presenting historical, verifiable financial data through statements such as income statements, balance sheets, and cash flow statements. Management accounting, on the other hand, is geared towards internal users like managers, aiding in decision-making, planning, and control, using both qualitative and quantitative data, and offering a future-oriented perspective. The report further explores the usefulness of financial information to various stakeholders, including owners, creditors, employees, investors, the government, consumers, and stock exchanges, emphasizing how each group relies on financial data to assess business performance, make informed decisions, and ensure financial stability. The report also includes references to academic sources.

Explain the key differences between management
accounts and financial accounts and their
usefulness to the users of financial information

Difference between financial and management accounting...................................................3
Usefulness of Financial information to the users...................................................................4
REFERENCES...........................................................................................................................6

Difference between financial and management accounting
Financial accounting is a special branch of accounting that keeps a record of financial
transactions of the company. These transactions are summarized and then prepared in the
form of financial statement like income statement, balance sheet and the cash flow statement
which helps in keeping a track of the financial performance of company.
Management accounting is concerned with identifying, measuring, analysing and
interpreting the financial information to the managers so that the organization can achieve its
goals and objectives. The main objective of management accounting is to perform all the
necessary functions like planning, organizing, staffing, directing and controlling.
Financial accounting Management accounting
The major objective of financial accounting
is to provide information to external parties
like creditors, shareholders, investors,
government and consumers (Richardson,
2017). This further helps the investors in
making better informed decisions.
The main motive of management
accounting is to make informed better
decisions to improve the overall
performance of the company.
The financial accounting statements are
prepared on the basis of GAAP also known
as generally accepted accounting principles
to maintain regularity in the accounts of the
company.
There are no standard principles governing
the management accounting statements.
These statements are prepared on the
requirements of the company.
Financial accounts are prepared for the
external parties like customers, shareholders
and investors so that they can have complete
information about the performance of the
company.
Reports prepared under the management
accounting are made for the internal parties
like CEO, employees and managers to
analyse the performance of the business and
to check whether the management is
working adequately or not to achieve the
goals and objectives.
Financial accounting statements consists of
Income statement, balance sheet and cash
flow statement.
Management accounting reports are the
monthly or weekly analysis of the
management’s performance.
There is no sense of confidentiality in
financial statements as they are meant for
the use of public only.
The management accounting reports are
extremely confidential as they are prepared
only for the use of members of the
organization so that they can improve the
performance of the business (Zhang and Niu,
2019).
The financial reports are based on the past
activities thus they have a historical
perspective.
Management accounting reports aim to
improve the future performance of the
management of the company thus they have
a futuristic perspective.
Financial accounting only includes financial
information that in quantitative in nature, it
does not account for any qualitative data.
Also, the data of financial accounts is
absolutely accurate and verifiable which
means that the report has an evidence to
Management accounting includes both
qualitative and quantitative data as both of
these data are equally important for
analysing the performance and growth
aspects of the company. The data of
management accounting is not verifiable

support it. because it is no completely based on facts
and figures. For instance, no business can
predict the future sales of the company
accurately.
Usefulness of Financial information to the users
Financial information is extremely important to its users like shareholders, customers,
employees, investors, creditors and government because these parties get affected by the
performance of the business is some way or the other and are called as stakeholders of the
company. The stakeholders are interested to know about the financial performance, position
and profitability of the company. The importance of financial information to different parties
is as follows:
Owners: The owners are the people who provide funds or capital for the business and
it is very important for them to understand whether the business is performing adequately and
if it is earning the projected revenue or not which can be analysed through financial
statements. Therefore, it’s important for the owners to study and analyse financial reports and
take necessary decisions accordingly.
Creditors: Creditors are the parties that lend goods or money on credit to the company
and they are most interested in analysing the financial statements to understand the soundness
of business and to check whether the company has the capacity to repay its debt or not. The
financial soundness of a business can be identified through an understanding of Income
statement and Balance sheet.
Employees: The payment of bonus and incentives depends upon the total revenue
earned by the firm therefore the employees of the company are interested in the financial
statements. Moreover, the wages and salaries of the workers also depends upon the
profitability of the business thus they are interested in knowing the financial report of the
organization (Xu and Xu, 2018). The employees and workers also go on labour strikes if they
are not paid accordingly by the firm even if it has accounted enough profit for the year.
Investors: Investors are a group of people that provides funds or finance to a business
so that it can grow in the near future. The profitability of a business directly affects the
investors because they are partners in the company and that is why it is important for them to
go through the financial statements to understand the safety of their statements.
Government: The government keeps a close check on the organizations that earn a
good amount of profits and are interested in knowing the financial statements of that business
for the purpose of taxation. With the help of these statements, government can easily identify
the defaulters and take legal action against them. Also, it is the duty of every company to
maintain full transparency with the government to ensure smooth functioning of the business
and to avoid legal trouble.
Consumers: The major objective of consumers is to purchase the goods and services
are reduced prices which mean that systematic accounting control will make sure that the
company is going to reduce the cost of production and the customers will have to pay less
price for the same productsand services.

Stock Exchange: These statements are important for stock exchange as it helps them
in protecting the interest of the investors and also useful for other commercial and financial
societies (Embong and Rad, 2018). Stock exchange can promote fair business operations and
regulatory trading of the organization with the help of accurate and reliable financial reports.

REFERENCES
Books and journals
Richardson, A .J., 2017. The relationship between management and financial accounting as
professions and technologies of practice. In The Role of the Management
Accountant (pp. 246-261). Routledge.
Embong, Z. and Rad, S. S. E., 2018. Decision Usefulness of Financial Information: the Role
of Audit and Ifrs. Jurnal Akuntansi dan Keuangan Indonesia. 15(1). pp.59-76.
Xu, H. J. and Xu, H., 2018, November. Educating Users on the Key Factors that Contribute
to the Usefulness of Financial Statement Analysis. In 3rd Annual International
Conference on Education and Development (ICED 2018). Atlantis Press.
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.