Since the terms financial accounting and management accounting are interrelated with each other, they are considered to be the same.
Management uses the information available from financial accounting and Management Accounting for decision-making.
Both financial accounting and management accounting concepts look the same, but there is a significant distinction between them.
Financial Accounting vs Management Accounting
The top 10 differences between financial accounting and management accounting are as follows:
1.Definition
Financial accounting involves the summary, analysis, and reporting of financial transactions for external parties, whereas management accounting decides on issues within their organizations through the use of financial information, allowing them to handle and execute control functions better.
2. Objective
The main objective of financial accounting is to disclose the company’s year-end results and to present the company’s financial condition at a specific date, while the main objectives of management accounting are to assist management by providing information that management uses to plan, decide, assess and control.
3. External vs. Internal
The financial accounting system generally generates information used by parties outside the organization, such as shareholders, banks, and creditors, while the management accounting system generates information used by managers and employees within an organization.
4. Focus
Financial accounting focuses on past activities, while management accounting focuses on the future.
5. Compulsory Vs. Optional
The preparation of financial accounting statements is required for a period of 12 months, but while there are no legal requirements for the preparation of management accounting reports.
6. Reporting
Financial accounting emphasizes company-wide reports, while segment reports are emphasized by management accounting.
7. Span of Time
Financial accounting is required to be produced for a period of twelve months, while there is no specific time period for the production of financial statements.
8. GAAP/IFRS
Financial accounting must comply with GAAP or IFRS rules, while in management accounting, there is no need to comply with GAAP/IFRS rules.
9. Center of Importance
Financial accounting, the source of knowledge preservation, emphasizes record-keeping on an entirely firm basis for the purpose of decisions by all users of accounting information, both external and internal, while In order to provide information, management accounting utilizes cost data for strategic management decisions. It is mainly about providing managers with assistance to assist them in the decision-making process and designing business strategies.
10. Verification
Financial accounting is audited by the CPA, while management accounting does not require an independent audit.
You may also read:
- Cost Accounting Vs Management Accounting
- Bookkeeping vs Accounting
- What are the Functions of Accounting?
