Great Understanding- Differences between Financial Accounting and Management Accounting

Financial accounting and management accounting both prepare and analyze financial knowledge. However, positive aspects of these fields are very different. This article discusses the various differences between financial accounting and management accounting.

Financial accounting and management accounting provide knowledge to different user groups. Financial accounting primarily provides knowledge for outside users of accounting knowledge, such as investors and creditors. On the other hand, management accounting provides knowledge for internal users of accounting knowledge.

Financial Accounting

Financial accounting has its focus on the financial statements which are distributed to stockholders, lenders, financial analysts, & others outside of the company. Courses in Financial Accounting cover the usually accepted accounting principles which must be followed when reporting the results of a corporation's past transactions on its balance sheet, income statement, statement of money flows, & statement of changes in stock holder's equity.

Financial accounting is used to present the financial health of an organization to its outside stakeholders. Board of directors, stockholders, financial institutions & other investors are the audience for financial accounting reports. Financial accounting presents a specific time period historically & allows the audience to see how the company has performed

Management Accounting

Management accounting has its focus on providing information within the company so that its management can operate the company more effectively. Management accounting & cost accounting also provide instructions on computing the cost of products at a manufacturing enterprise. These costs will then be used in the outside financial statements. In addition to cost systems for manufacturers, courses in Management accounting will include topics such as cost behavior, break-even point, profit planning, operational budgeting, capital budgeting, relevant costs for decision making, activity based costing, & standard costing.

Management or managerial accounting is used by managers to make decisions concerning the day-to-day operations of a business. It is based not on past performance, but on current & future trends, which does not permit for exact numbers. Because managers often must make operation decisions in a short time-frame in a fluctuating surroundings, management accounting depends heavily on forecasting of markets & trends.

 Differences between Financial Accounting and Management Accounting

Management accounting is introduced internally, whereas financial accounting is meant for outside stakeholders. Although financial management is of great importance to current and potential investors, management accounting is necessary for managers to make current and future financial decisions. Financial accounting is exact and must adhere to Usually Accepted Accounting Principles (GAAP), but management accounting is often more of a guess or estimate, since most managers do not have time for exact numbers when a choice needs to be made.

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