Financial accountancy is a domain of accountancy
concerned with the preparation of financial statements for decision
makers, such as stockholders, suppliers, banks, employees, government
agencies, owners, and other stakeholders. Financial accountants are
required to measure and monitor agents' performance and reporting the
results to decision makers.
Financial Accountants prepare accounting
information for people outside the organization or not involved in the
day to day running of the company; whereas, management accounting
provides accounting information to help managers decide how to manage
the business.
Financial Accounting can be defined as a process
of summarizing financial data taken from an organization's accounting
records and publishing in the form of annual reports for the benefit of
people outside the organization. This stream of accountancy is governed
by both local and international accounting standards.
Management accounting and financial accounting are
the two main branches of accounting in general. Any data related to
events, transactions and activities within an organization form the
common and principal source of information for management and financial
accounting.
Some of the differences between Financial
Accounting and Management accounting are:
Financial Accounting presents the financial
position of an organization and provides information related to revenue
generation or profits to stakeholders. The focus is mainly on external
information users such as primarily regulators, government and owners.
On the other hand, Management accounting focuses on internal financial
information, with reports prepared for internal managers, who use it to
aid and facilitate planning, decision-making and control.
Management accounting is used by an organization's
managers. External stakeholders do not even view management accounts.
The reason being, there is no legal requirement for any organization to
prepare management accounts.
Financial reports are for external users so
financial reports must adhere to International Financial Reporting
Standards and International Accounting Standards. So, the financial
reports are standardized while management accounting formats and
systems vary among and within organizations.
Management accounting has narrower focus than
financial accounting. The focus is much more specific, as it deals with
particular activities, sections or departments. Moreover, financial
reports usually deals only with financial information whereas
management accounts incorporate both monetary and non-monetary
measures, i.e. financial and non-financial information.
These are some of the differences between
financial accounting and management accounting.
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