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Differences between financial accounting and management accounting

DIFFERENCES BETWEEN FINANCIAL ACCOUNTING AND MANAGEMENT ACCOUNTING

Some of the differences between financial accounting and management accounting are summarized as follows

(i)                 Objectives. The main objective of the financial accounting is to make a periodical report to owners, creditors, investors, employees, and general public with regard to the financial position of a business at the end of the period. On the other hand, the objective of the management accounting is to assist internal management.

(ii)               Nature. Financial accounting is concerned with past data whereas the Management accounting stresses on the future. And also it deals with the future plans and policies.

(iii)             Legal provisions. As per the provisions of the law, financial accounting is compulsory for all the business concerns. But the management accounting is followed on voluntary basis to increase the operational efficiency of the business organizations.

(iv)             Accounting principle. Financial accounting is governed by the generally accepted accounting principles and conventions. But no such set of principles are followed in management accounting.

(v)               Methodology. In financial accounting, records are maintained in the form of  revenue, income and expenditure, personal accounts, real accounts, and nominal accounts etc. But in the case of management accounting, costs and revenue are usually reported by responsibility centers or profit centers.

(vi)             Publication. Financial statements like trading, profit and loss Ale and Balance sheet are published for the use of all concerned i.e., investors, creditors, employees, and general public. These statements are duly audited by the practicing chartered accountants. These provisions are not there in management accounting.

(vii)           Coverage. Financial accounting covers entire business activity specifically for the whole financial transaction. But management accounting considers only the activity relevant to the management for decision making purpose.

(viii)          Periodicity of reporting. In management accounting, immediate and prompt communication of data is essential. In real practice, if the data are received too late or not up to date, it would not be useful for the management decision making purpose. Under financial accounting, quick communication of information is not required unless otherwise stated.