Incredible Mag

Financial Accounting vs. Management Accounting

<p>When you hear the word &OpenCurlyDoubleQuote;accounting”&comma; chances are that your mind immediately goes to money&period; Accounting does deal primarily with the money that goes through a business&period; It describes the movement of the money in great detail and is an extremely important tool for determining the legality and success of a company&period; If done well&comma; accounting can help us understand how well we deal with our expenses&comma; what profit we’re getting&comma; risks and opportunities for investments&comma; the future of the company&comma; and much more&period; Therefore&comma; it’s a highly important branch of business&period;<&sol;p>&NewLine;<p>Now&comma; the thing that normally causes confusion is the division between financial and management accounting&period; While financial accounting is what we normally expect &&num;8211&semi; ie&period; reports of the current financial situation in a company&semi; management accounting is creating reports that will help managers decide on the best course of action&period; It’s completely internal&comma; and largely predictive instead of descriptive&period; Here are the most important differences between the two&period;<&sol;p>&NewLine;<h2>1&period; Purpose<&sol;h2>&NewLine;<p>When it comes to financial accounting&comma; the main goal is to make a company’s records available for outside viewing&period; That means that the financial records are made for the general public&comma; and all facts and figures are disclosed publicly&period; These reports aim at giving the potential investors an idea of how well the company is doing and how well it can be expected to do in the future&period; They are also meant to be available to the shareholders&comma; in order to give them insight into the financial aspects of the company whose shares they own&period;<&sol;p>&NewLine;<p>Management accounting&comma; on the other hand&comma; is not meant for the eyes of the general public&period; The reports of management accounting are done purely for internal purposes&period; Everything about them is confidential and they are used for aid in decision making within the company&period; They exist to encourage or prevent action such as acceptance of projects&period; The only people concerned with these reports are the managers of the company&comma; and the reports are usually not disclosed to anyone else&period;<&sol;p>&NewLine;<h2>2&period; Scope<&sol;h2>&NewLine;<p>Next point of difference is the scope of the reports&period; Financial accounting deals with the results of the entire business&period; They also usually aim only at a company’s financial data&comma; excluding everything else&period; These reports are about financial statements&comma; which then get distributed both within and outside of the company&period; On the other hand&comma; management accounting is about creating operational reports&comma; which are much more detailed and include all sorts of things&period; They can discuss the profits in relation to product&comma; service&comma; customer&comma; etc&comma; which means that they are not purely financial statements&period; They need to include all kinds of data that can be useful in the decision-making process&comma; so it’s important for every company to work with capable experts in this field&period; Good management accounting can save your company from financial loss&comma; and it can significantly improve your business&period;<&sol;p>&NewLine;<h2>3&period; Accuracy<&sol;h2>&NewLine;<p>Financial accounting reports have to be accurate and made with precision&period; These are sensitive information&comma; and should always be double checked&period; As opposed to that&comma; management accounting is more about estimation&comma; so the accuracy of the reports cannot really be measured immediately&period; They are used for planning and forecasting&comma; so the facts are not as verifiable as is the case with financial accounting&period; The need for the maximum possible precision in both areas is exactly why every company needs capable professionals&period; If your business is located in Australia&comma; the <u>trustworthy accountants from Glebe<&sol;u> will be able to help you on both fronts&period; Precise financial and management reports can be a key to successful business&period;<&sol;p>&NewLine;<h2>4&period; Standards and the law<&sol;h2>&NewLine;<p>Financial and management accounting comply with different standards &lpar;or lack of thereof&rpar;&period; The former has to respect universal standards&comma; such as IFRS or US GAAP&period; It is necessary because that makes it much easier for the people in the field to understand the reports&period; Also&comma; financial reports are a legal requirement&period; The latter has no particular regulations or set standards&period; The format depends on the target audience and is generally dependent only on the traditions of the given company&period; This type is not regulated by the law&period;<&sol;p>&NewLine;<h2>5&period; System<&sol;h2>&NewLine;<p>While financial accounting doesn’t deal with the overall system of the company and focuses simply on the profits and losses&comma; management accounting is a bit more complicated&period; Except for having a role in the decision-making process of the company&comma; it also aims at solving any <u>bottleneck <&sol;u>issues&period; This requires a thorough understanding of the company’s systems and procedures&comma; which makes the management accountant’s job all the more complicated&period;<&sol;p>&NewLine;<h2>6&period; Timing<&sol;h2>&NewLine;<p>Financial reports are usually made at the end of an accounting period&comma; which is usually a year&period; Conversely&comma; management accounting reports are made more frequently than once a year&period; Because their purpose is to improve the future of the company&comma; they are needed whenever there is an important decision to be made&period;<&sol;p>&NewLine;<h2>7&period; Time period<&sol;h2>&NewLine;<p>The last distinction between the two is the time period they cover&period; Financial reports are historically oriented&comma; as they describe the results that were achieved in the past&period; In contrast&comma; management accounting reports are about the present&comma; as they can show the current events and the progress that is &lpar;not&rpar; being made at the moment&period; They can also be oriented towards the future because they also deal with forecasts&period;<&sol;p>&NewLine;<p>&nbsp&semi;<&sol;p>&NewLine;<p>Both kinds of accounting are useful in their ways&period; While financial reports deal with the financial aspect of a company in past periods&comma; management reports are about the current state&comma; predictions&comma; and decision-making&period;<&sol;p>&NewLine;

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