How is financial accounting different from management accounting?

Answer:

Financial accounting and management accounting are two of the four major branches of the accounting discipline (tax accounting and auditing, etc.). Despite the many similarities in approach and use, there are significant differences between the two. These differences center on compliance with accounting standards and the target audience.

Managerial and financial accounting purposes

The main objective of management accounting is the production of useful information for internal use. Business managers collect information that encourages strategic planning helps you set realistic goals, and encourages and efficient allocation of company resources.

Financial accounting has some for internal use, but it is much more concerned with informing those outside the company. Final financial report and financial statements are prepared on the basis of financial reporting is designed to disclose the performance of the business and financial condition. If management accounting is created for the company’s management, and then financial accounting is created for its investors, creditors and regulators of the industry.

Past and present usage

Information created on the basis of financial statements is entirely historical; financial reports contain data for a certain period of time. Management accounting looks at the past performance and creates business forecasts. Business decisions must be informed on this type of account.

Investors and creditors often use financial statements to generate predictions of their own. Thus, Finance is not quite old-fashioned. However, there is no future prediction is allowed in the statements.

Regulation and maintenance of unity

The biggest practical difference between financial accounting and managerial accounting relates to their legal status. Reports created on the basis of management accounting circulated only internally. Each company creates its own rules and system and management reporting.

Unlike financial accounting reporting is strictly regulated, particularly the statement of profit and loss, balance sheet and statement of cash flows. Since this information is public, companies must be very careful about how they do calculations, as reported by numbers, and the order in which these reports are based.

The Council on financial accounting standards (FASB), under the auspices of the Commission on securities and exchange Commission (sec), establishes accounting and reporting in the United States. The combination of these rules called generally accepted accounting principles (GAAP).

Thanks to this homogeneity, investors and lenders to compare companies directly on the basis of their financial statements. In addition, financial statements are released on a regular basis, the sequencing of external information flows.

Omitting The Details

For a number of reasons, financial accounting reporting, as a rule, should be United, is a brief and generalized. Information both more transparent and less revealing. This is usually not the case with management accounting.

Management accounting reports are very detailed, technical, specific and often experimental. Firms are always looking for a competitive advantage, so they learn a lot of information, which might seem pedantic or incomprehensible to outsiders.

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