In this essay I will be talking about the differences and similarities between financial and management accounting and how they are used to communicate a business’s financial information to shareholders and managers.
In business there are various areas marketing, economics, accounting and finance among these accounting is one of the most difficult ones as it requires you to analyse and report a business’s financial transactions thought periods of time. Accounting divides into various areas but the areas I will mainly be looking at are financial and management accounting.
Financial accounting is about with the preparation of financial statements for the use of the stockholders, suppliers, banks, employees, government agencies and the owners of the business enterprise.
It is intended to aid in the reduction of problems that may arise in the day to day transactions of the business. It publishes an annual report that summarizes an organizations financial data that are taken from their records.
It is governed by local and international accounting standards. Its main purpose is to produce financial statements, provide information that can be used in the decision making and planning and to help an organization meet regulatory requirements. It is a legal requirement of all publicly traded organization.
Management accounting is concerned in providing basis for decision making and use of information by managers within an organization. It helps identify, measure, accumulate, analyze and interpret information to be used in planning, evaluation and control to ensure the proper use of organizations resources.
It also provides financial reports to shareholders, creditors, regulatory agencies and tax agencies. Management accounting involves sales forecasting reports, budget and comparative analysis, feasibility studies and merger or consolidation reports.
It is intended to provide information that is more a forecast than a background, to managers within the organization, is confidential and is computed by using information systems rather than general financial accounting standards. It is used in strategic, performance and risk management.
Management accounting has the following concepts:
. Cost accounting which is a central element is managerial accounting.
(GPK) which a German costing method that gives ways on how to calculate costs that are assigned to a product or service.
. Lean accounting is used for a lean enterprise.
. (RCA) gives managers the information required to support an organizations growth.
. Throughput accounting which recognizes modern production processes need for each other.
. Transfer pricing which is used in manufacturing and banking.
1. Financial accounting is legally required from an organization, while management accounting is not.
2. Financial accounting must be reviewed by a separate accounting firm, while management accounting is not required of this.
3. Financial accounting is concerned about how the financial resources of the organization will affect its performance, while management accounting is concerned in how the reports will affect the behaviour and performance of its employees.
4. Financial accounting is governed by both local and international accounting standards, while management accounting is not.
5. Financial accounting is historical in nature, that is, the reports are based on an organizations previous performance and dealings, while management accounting is a forecast
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