ACCOUNTING

Distinguish of Financial and Management Accounting

Contents

Introduction3

Discussion3

Format3

Purpose4

Users5

Objectives6

Mandatory or Not8

Relevance of data8

Decision-making9

Conclusion10

Distinguish of Financial and Management Accounting

Introduction

Accounting can be explained as methods of recording, classifying or summarizing daily transactions in a significant way so that relation with outsider is exactly determined, and the result of different business operations during a specific time are calculated, and the final state, at the end of the period, are shown (Chakma, 2013, p. n.d). It is divided into many branches, financial accounting and management accounting being two of them. Financial Accountancy deals with the financial statements being prepared for decision makers, such as stockholders, suppliers, banks, employees, government agencies, owners etc. It is used to generate accounting information for people, not in the business or not involved in the day to day running of the business. Whereas, Management Accountancy deals in providing and managing accounting information in such a systematic way that the management can perform their duty of planning, controlling and decision making, for maximizing profits or minimizing losses, in an effective and efficient manner. It is basically a support system for decision making to the management.

Discussion

Format

The first basic difference between the two types is their format. Financial accounts must be in accordance to the proper format provided by the International Accounting Standards (IAS) so that different companies' financial accounts can be differentiated. It must be in accordance to the generally accepted accounting principles also known as GAAP. The users of these reports must have some assurance that these statements are prepared on a general set of rules. These ground rules help reduce misrepresentation and fraud, but they do not mostly leads to reports that are useful in internal decision making. For internal decision making use, we have management accounting. Whereas for management accounting there is no particular format. The managers set their own rules as to the content and form of the internal report. It is an undeniable fact that financial reporting requirements have greatly influenced management accounting practices (Garrison, Noreen & Brewer, 2007, p. n.d).

Purpose

Financial accounts are historically factual and have values which might help in predicting, either it is profitable to invest in a business or not, or for financial decisions. Financial accounts of a company are like a giant portrait of the organization, having a hundred of features to help assess and evaluate the financial position and the future of the firm. At this stage, a question arises as to which piece of information is best to use to study a business? Well, different individuals study different aspects to determine either to invest in the business or not. For instance one investor might focus on just one part of the data provided (example profitability) while another investor might examine the complete opposite (example firm's sources and uses of cash). No matter what each individual investor examines from the data, all are trying to come to the same conclusion from the given data, which is first; corporations stocks price in the future, and second; the amount of cash dividends paid (Hoyle & ...