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
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…
It can be derived from the report that the objective of financial accounting is to produce the financial reports like profit and loss account and balance sheet which is mainly used by the external stakeholders of the company, when the objective of management accounting is to suggest the future paths to the company management after analyzing the financial statements produced by the financial accountants and the cash flow statement.
The essay discusses that both financial and management accounting is a critical part of any organisation. They play a vital role to make or break a business. Effectiveness and Efficiency of business organisations depends on sound financial and management accounting systems involved in any business concern.
Accountability 12 Conclusion 13 Reference 15 Abstract This study represents one of the most important areas of management accounting i.e. desirability and effectiveness of accounting for management control. Accounting is the most effective device used by managers and management for organizational control.
This information also equips the managers and the management staff with management skills and control functions. Management accounting information has a forward outlook, as opposed to the historical outlook of financial management. Management accounting models have degrees of notion for supporting the decision making process, instead of the case based model of financial accountancy.
The expert accounting conception and scientific accounting dexterity regarding measurement of performance, analysis, auditing and final reporting are as well pertinent to the supervision of healthy and sustainable ecological performance. With the increased international community's recognition of the ecological concerns, so has there been a simultaneously increased demand on accountants to provide comprehensive ecological costs and information on performance.
Management accounting is the process of identifying, recording, classifying, analysing and reporting of all cost aspects of information for management decisions, planning and control, performance evaluation, and even strategic purpose (Berry & Jarvis, 1997; Dyson, 2003; Glynn & Murphy, 1998; Wood & Sangster, 2002).
This aspect of accounting concerns itself with learning about the effect an organisation has on society and about its relationships with an entire range of stakeholders to whom it is accountable. These would include all those groups who affect and/or are affected by the organisation and its activities.
The current dilemma in the business world is that financial accounting becoming more harmonized whereas the management accounting varies with firms and regions. This assignment doesn't aim to show that how this harmonized financial accounting occurs or what are the differences between the two.
The absorption costing method concentrates on both the fixed as well as the variable costs. Hence this method is not very beneficial in the decision making and budgeting processes (Garrison, Noreen and