Financial Accounting Vs Management Accounting

financial accounting

The first difference is in its structure or formats of its presentation of information. Financial accounting has a single unified structure of presentation, which means, that the information relating to enterprise business method is introduced more or less on a uniform basis. The finish products of financial accounting are its basic financial statements, and these are:

- The balance sheet.

- The statement of changes in financial position.
financial accounting

- The profit and loss account/income statement.

The balance sheet presents the financial position of an organisation at any point of time. The profit and loss statement would contain the organisation's financial performance over a specified timeframe, which is usually year. The inflow and outflow of financial resources of an organisation in the work of a timeframe is reported in the statement of changes.

The financial statements prepared are based on an equation or model, which suggests, that all organisations present their financial statements on basis of a uniform structure. This would mean that financial accounting has a unified structure.

On the other hand, management accounting is chiefly concerned with the in-house management. Since the accounting statements are used internally, it varies in structure from organisation to organisation, depending on the circumstances and requirements of individual use. Therefore, management accounting is tailored to meet the needs of the management of the particular organisation.
financial accounting

Primarily, financial statements are usually meant for people outside the organisation, such as, shareholders, creditors, government, the general public, and like others. These people also get such reports from other organisations, and to maintain uniformity in these statements, financial accounting method makes use of a unified structure method.

On the other hand, management accounting is an in-house requirement, and is for the exclusive use of the management of the organisation. These management accounting statements are never made available to the outsiders, and hence could be formulated in the manner as wanted by the in-house management.

The next difference is in the usually accepted accounting principles. Financial accounting is prepared in accordance with the Usually Accepted Accounting Principles, which in short is named GAAP. Preparation of financial statements following GAAP ensures that the account presentations have been prepared on basis of a norm, as per the general guidelines issued by law.

financial accounting

The third difference between financial accounting and management accounting is the statutory requirement of preparation of accounts. As discussed above, financial statements are prepared solely for the people outside the organisation, who have interests in the business operation of the organisation. There's shareholders, who would use the information contained in the financial statements, to choose whether or not to invest in the organisation. By law it is mandatory to prepare such statements, and it is a statutory obligation. In fact, the company law not only makes it mandatory to prepare such accounts, it also has laid down the structures, based on which such financial statements require to be prepared.