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Financial and Management Accounting: The Contribution to Effective Business and Management - Essay Example

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Financial and Management Accounting: The Contribution to Effective Business and Management

Center of discussion in this paper is management accounting as an internal endeavor where the management accountant addresses the internal environment of the business organization. Management accounting is chiefly involved in planning and controlling. The management accountant envisages the future of an organization and evaluates the performance of the organization with the set standards hence achieving his controlling function. Financial accounting is an external financial initiative. A financial accountant prepares financial accounts for the scrutiny of members in house to the organization and to other external members. The financial accountant is responsible to the stakeholders of the business: shareholders, employees, creditors, debtors, customers, and the community it serves. To begin with, the difference between financial accounting and management accounting will be delineated in regard to the requirement for an organization to have either or both. Financial accounting is mandatory for any company seeking to be registered under the company’s Act. This is since each company needs to present the financial prospect of the organization in the next five years after commencing business. Consequently, financial accounting is required by the tax authorities and the exchange and commission authorities hence it is mandatory for any organization to have financial accounting. However, management accounting is for the benefit of the internal organization and is therefore not a mandatory requirement. An organization depending on the usefulness of the information generated by the management accounting decides if it requires a management accountant or not (Warren, Reeve and Duchae, 2008, p. 729). Both management and financial accounting engage in planning activities while preparing to plan for their record generation. However, there is a difference in their emphasis during the planning process. A manager is mainly future oriented and hence managerial accounting focuses more on the future prospects of a business. It uses the vision of a business organization to plan activities, which is stipulated in the mission statement of the organization that most managerial accountants aid in the development. In contrast, financial accounting lays emphasis on past financial performances of a business and uses them as a basis of planning for the future financial prospects of a business organization (Ferrara, 2007, p.171). Management and financial accounting differ in the segment of the organization that they report to. Financial accounting is majorly a holistic approach and the report it complies shows the financial position of the company. It is via the financial accountants report that investors know the financial position of a company. In contrast, management accounting is subdivided into managerial positions in the organization. This entails that there can be a management accountant for the advertising department, sales department, procurement department and transport department. Hence compared to management accounting, financial accounting is external as it is reviewed by other parties not in the organization (Stickney, et al. 2009, p. 100). Financial accounting is governed by the Generally Accepted Accounting Principles (GAAP). GAAP governs all financial account ...Show more

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The researcher of this essay will be aimed at outlining the differences between financial and management accounting, delineating their benefits and limitations and consequently explaining their contribution to effective business management…
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Financial and Management Accounting: The Contribution to Effective Business and Management essay example
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