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Key Differences

Know the Differences & Comparisons

Difference Between Financial Accounting and Management Accounting

Last updated on July 26, 2018 by Surbhi S

financial vs management accountingAccounting, refers to the process of recording, classifying and summarizing in monetary terms, the business transactions and events and interpreting the results. It is used by entities to keep a track of their financial transactions. Financial Accounting and Management accounting are the two branches of accounting. Financial accounting stresses on giving true and a fair view of the financial position of the company to various parties.

On the contrary, management accounting aims at providing both qualitative and quantitative information to the managers, so as to assist them in decision making and thus maximizing the profit. This article excerpt is created to help you learn the significant differences between financial accounting and management accounting.

Content: Financial Accounting Vs Management Accounting

  1. Comparison Chart
  2. Definition
  3. Key Differences
  4. Similarities
  5. Conclusion

Comparison Chart

Basis for ComparisonFinancial AccountingManagement Accounting
MeaningFinancial Accounting is an accounting system that focuses on the preparation of financial statement of an organization to provide the financial information to the interested parties.The accounting system which provides relevant information to the managers to make policies, plans and strategies for running the business effectively is known as Management Accounting.
Is is compulsory?YesNo
InformationMonetary information only.Monetary and non-monetary information
ObjectiveTo provide financial information to outsiders.To assist the management in planning and decision making process by providing detailed information on various matters.
FormatSpecifiedNot specified
Time FrameFinancial Statements are prepared at the end of the accounting period which is usually one year.The reports are prepared as per the need and requirements of the organization.
UserInternal and external partiesOnly internal management.
ReportsSummarized Reports about the financial position of the organizationComplete and Detailed reports regarding various information.
Publishing and auditingRequired to be published and audited by statutory auditorsNeither published nor audited by statutory auditors.

Definition of Financial Accounting

Financial Accounting is an accounting system which is concerned with the preparation of financial statement for the outside parties like creditors, shareholders, investors, suppliers, lenders, customers, etc. It is the purest form of accounting in which proper record keeping and reporting of financial data are done, to provide relevant and material information to its users.

Financial Accounting is based on various assumptions, principles and convention like going concern, materiality, matching, realisation, conservatism, consistency, accrual, historical cost, etc. The financial statement consists of a Balance Sheet, Income Statement and Cash flow statement which are prepared as per the guidelines provided by the relevant statute.

Normally, the statements based on the financial accounting are prepared for one accounting year, to enable the user to make comparisons regarding the financial position, profitability and performance of the company in a specific period. Not only external parties but internal management also gets information for forecasting, planning, and decision making.

Definition of Management Accounting

Management Accounting, also known as Managerial Accounting is the accounting for managers which helps the management of the organisation to formulate policies and forecasting, planning and controlling the day to day business operations of the organisation. Both the quantitative and qualitative information are captured and analysed by the management accounting.

The functional area of management accounting is not limited to providing a financial or cost information only. Instead, it extracts the relevant and material information from financial and cost accounting to assist the management in budgeting, setting goals, decision making, etc. The accounting can be done as per the requirement of the management, i.e. weekly, monthly, quarterly, etc. and there is no format set on the basis of which it is to be reported.

Key Differences Between Financial Accounting and Management Accounting

The following points explain the major differences between financial accounting and managerial accounting:

  1. Financial Accounting is the branch of accounting which keeps track of all the financial information of the entity. Management Accounting is that branch of accounting which records and reports both the financial and nonfinancial information of an entity.
  2. Users of financial accounting are both the internal management of the company and the external parties while the users of the management accounting are only the internal management.
  3. Financial accounting is to be publicly reported whereas the Management Accounting is for the use of the organisation and hence it is very confidential.
  4. Only monetary information is contained in financial accounting. As against this, management accounting contains both monetary and non-monetary information such as the number of workers, the quantity of raw material used and sold, etc.
  5. Financial Accounting is done in the prescribed format, whereas there is no prescribed format for the Management Accounting.
  6. Financial Accounting focuses on providing information about the functioning of the entity’s business to its users, whereas Management Accounting focuses on providing information to help them in evaluating the performance and devising plans for the future.
  7. The Financial Accounting is mainly done for a specific period, which is usually one year. On the other hand, the management accounting is done as per the needs of the management say quarterly, half yearly, etc.
  8. Financial accounting is a must for any company for auditing purposes. On the contrary, management accounting is voluntary, as no editing is done.
  9. Financial accounting information is required to be published and audited by statutory auditors. Unlike, management accounting, which does not require information to be published and audited, as they are for internal use only.

Similarities

  • Used by the Internal Management.
  • Evaluation of Performance.
  • Branch of Accounting.
  • Presents the position of the entity.

Conclusion

Financial Accounting and Management Accounting are of great significance, in fact, they help the organisation in various ways. As financial accounting is helpful in the proper record keeping of innumerous transactions and comparison of the performance of two periods of an entity or between the two entities, while the management accounting is helpful in analysing the performance, making a strategy, taking an effective judgement and preparation of policies for the future.

Related Differences

  • Difference Between Common Intention and Common Object
  • Difference Between Revenue and Profit
  • Difference Between Explicit Knowledge and Tacit Knowledge
  • Difference Between Guarantee and Warranty
  • Difference Between Giffen Goods and Inferior Goods

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Comments

  1. ahammed hussain says

    April 27, 2016 at 8:05 am

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    Reply
  2. Bernadette Chavepeyer says

    February 5, 2017 at 2:29 pm

    Very helpful! Thanks

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  3. CARLOS says

    April 19, 2017 at 9:22 pm

    VERY HELPFUL.
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  4. Ram says

    October 18, 2017 at 7:45 pm

    Helpful… Thanks

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  5. faarax says

    December 17, 2017 at 2:01 pm

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  6. Trupti says

    January 31, 2018 at 7:08 pm

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  7. Doll says

    May 27, 2018 at 11:39 pm

    simple and easy to understand. thank yo so much

    Reply
    • Sylvester says

      November 26, 2020 at 2:32 am

      As a good job! Thank

      Reply
  8. jennifer marwal (economic expert) says

    September 24, 2018 at 2:55 pm

    very nice information

    Reply
  9. Nils says

    December 4, 2018 at 12:02 am

    Helpful.Thanks a lot

    Reply
  10. arina says

    August 8, 2019 at 10:37 pm

    helpfull to get infomation for the beginners

    Reply
  11. Sani Barbhuiya says

    November 30, 2019 at 8:46 am

    Very nice

    Reply
  12. Mohamed Naseer Ali says

    September 22, 2020 at 4:36 pm

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  13. Adala Christine says

    January 20, 2021 at 12:42 am

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  14. HEMADARSHINI ARUMUGAM says

    February 23, 2021 at 8:53 am

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