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Difference Between Financial Accounting and Managenment Account

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17 views3 pages

Difference Between Financial Accounting and Managenment Account

Uploaded by

kaythi.khaing.19842024
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Table of Content

 What is Financial Accounting?


 What is Management Accounting?
 Difference between Financial Accounting and Management Accounting
What is Financial Accounting?
An accounting system that helps in classifying, analysing, summarising, and
recording a company’s financial transactions is known as Financial
Accounting. It is concerned with preparing financial statements for external
stakeholders, including investors, creditors, and regulators. Financial
accounting provides a historical record of a company’s financial performance
and position, which can be used to assess its financial health and
make investment decisions.
The financial statements prepared in financial accounting are standardised
and must follow Generally Accepted Accounting Principles (GAAP) . Financial
statements are prepared as per Schedule III of the Companies Act, 2013.
The main financial statements are the income statement, balance sheet, and
cash flow statement, which report a company’s revenue and expenses,
assets and liabilities, and cash flows, respectively.
Financial accounting is highly regulated and subject to strict rules and
guidelines to ensure accuracy and transparency. The information reported in
financial statements must be audited by an independent auditor to verify its
accuracy.
What is Management Accounting?
An accounting system that helps in collecting, analysing, and understanding
the financial, qualitative, and statistical information ultimately helping the
management in making effective decisions regarding the business is known
as Management Accounting. It is also known as Managerial
Accounting. In simple terms, it is concerned with providing information to
the management of a company to assist them in making decisions.
Management accounting uses financial data to generate reports that are
tailored to the needs of specific managers and departments within an
organisation. These reports can include budget forecasts, cost analysis,
variance analysis, etc.
Unlike financial accounting, management accounting is not subject to strict
regulations or standardised reporting requirements. Management
accountants have greater flexibility in how they report financial data, allowing
them to create reports that are more relevant and useful to specific
managers and departments.
What is the difference between Financial Accounting
and Management Accounting?
Financial Management
Basis Accounting Accounting

An accounting system
that helps in collecting,
An accounting system analysing, and
that helps in classifying, understanding the
analysing, summarising, financial, qualitative, and
Meaning
and recording a statistical information
company’s financial ultimately helps the
transactions. management in making
effective decisions
regarding the business.

It helps in showing a It helps the management


true and fair picture of in making meaningful
Application
the financial position of decisions and
an organisation. strategizes accordingly.

Its objective is to assist


Its objective is to create the internal management
Objective
periodical reports. of an organisation in
making decisions.

There are both internal


(employees, There are only internal
management, etc.) and users (management,
Users
external (customers, etc.) of management
creditors, etc.) users of accounting.
financial accounting.

The statements or
The statements under
reports under
Nature of the financial accounting are
management accounting
Statements prepared prepared for general-
are prepared for specific-
purpose.
purpose.

Statutory Requirement It is mandatory to There is no statutory


Financial Management
Basis Accounting Accounting

prepare the financial requirement for


statements of a management
company. accounting.

The scope of
The scope of financial management accounting
Scope
accounting is pervasive. is broader than financial
accounting.

There are no fixed rules


Financial accounting
while preparing reports
Rules strictly follows the rules
through management
of GAAP.
accounting.

Financial statements
Reports under this
under this accounting
accounting system are
Time Span system are prepared for
prepared according to
a fixed time period; i.e.,
their need.
one year.

Historical and estimated


Historical information is
Basis of Decision- (predictive) information is
used as the basis of
making used as the basis of
decision-making.
decision-making.

The information The information


presented in the presented in the reports
Verifiable
financial statements is is predictive; hence, not
verifiable. immediately verifiable.

There is a specific There is no specific


format for presenting format for presenting
Format and recording information in
information through management
financial accounting. accounting.

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