SPJGM / FADM /Workbook Page 2

OVERVIEW

 Introduction
Financial accounting vs. management accounting vs.{ financial management vs. Auditing}

Financial Accounting Vs. Management Accounting

 Primary purpose

 Orientation

 Examples of reports

 Users

 Fundamental or unifying equation

 Compulsory or optional

 External standards governing preparation

 Monetary & non monetary information content

 Precision of information

 Details relating to segments / products etc.

Identify if each of the following statements describe Financial Accounting (FA) or Management Accounting (MA) ?

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Student to fill in;

Numbers for Financial Accounting

Numbers for Management Accounting

# #
is to educate managers understand financial 1 Primary purpose 2 is to maintain systematic records of past transactions.
consequences of their actions, proposals and decisions.
More concerned with measuring financial position and 3 Orientation 4 More concerned with establishing plans for the future i.e.
changes in financial position. Planning and achieving compliance with these plans i.e.
control
Examples include Statement of Financial Position, 5 Reports 6 Examples include budgets, feasibility reports etc.
Income Statement & Cash Flow statement
Users include managers, shareholders, etc. (Hence the 7 Users 8 Users are managers and other authorised personnel.
term "external accounting") Hence the term "internal accounting”
Does not have a single unified structure 9 Overall Equation 10 Built around the fundamental equation
Assets = Liabilities + Owners Equity
Is compulsory 11 Compulsory 12 Is optional
Governed by externally imposed standards 13 Standards 14 Has no externally imposed standards
Emphasis is on monetary ($) information 15 Type of 16 Deals with non-monetary information as well as monetary
information information. E.g. profit, quality, customer loyalty etc.
Focuses on relatively small parts of the organisation. 17 Unit of report 18 Focuses on the organisation as a whole
More emphasis on precision and accuracy of 19 Precision & 20 Management needs information rapidly in order to avoid
information accuracy " Analysis Paralysis " Therefore less emphasis on
precision and accuracy of information
reports are the end products of the system i.e. 21 Objective of 22 reports are means to other ends e.g. they facilitate
Statement of Financial Position, Income Statement & reports planning, co-ordination and control.
Cash Flow statement
Not applicable 23 Audit 24 Possible

Similarities between financial accounting & management accounting do exist. e.g. the need for objectivity, verifiability etc.

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ANSWER
Financial Accounting Management Accounting

to maintain systematic records of past transactions. Primary purpose to educate managers understand financial consequences of
their actions, proposals and decisions.
Records and reports the financial history i.e. the past of the Orientation Includes future information (forecasts, plans etc.) as well as
organisation past information
Examples include Balance Sheet, Income Statement & Reports Examples include budgets, feasibility reports etc.
Statement of Cash Flows
Users include managers, shareholders, suppliers etc. Users Users are managers and other authorised personnel. Hence the
(Hence the term "external accounting") term "internal accounting”
Built around the fundamental equation Overall Equation Does not have a single unified structure
Assets = Liabilities + Owners Equity
Is compulsory Compulsory Is optional
Governed by externally imposed standards Standards Has no externally imposed standards
Emphasis is on monetary information Type of information Deals with non-monetary information as well as monetary
information. E.g. physical quantity for production, weight,
volume, labour hours, machine hours etc.
Focuses on the organisation as a whole Unit of information Focuses on relatively small parts of the organisation.
High emphasis on precision and accuracy of information Precision & accuracy Management needs information timely in order to avoid "
analysis paralysis " Therefore less emphasis on precision and
accuracy of information. Relevance is more important..
Financial Accounting reports are the end products of the Objective of reports Management Accounting reports are means to other ends e.g.
system i.e. Statement of Financial Position, Income they facilitate planning, co-ordination and control.
Statement & Cash Flow statement
Possible. Applicable for company financial statements Audit Not applicable

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