Management Accounting vs Financial Accounting: A Concise Guide to the Differences
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Management Accounting vs Financial Accounting: A Concise Guide to the Differences
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Time Markers:
1) Introduction 0:11
2) External vs Internal User 0:45
3) Generalised vs Specialised Info 3:15
4) Historical vs Future Perspective 6:02
5) Rules-based vs Customised Reports 7:33
6) Overall Functions 11:49
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MANAGEMENT ACCOUNTING VS FINANCIAL ACCOUNTING
A Concise Guide
MANAGEMENT ACCOUNTING VS FINANCIAL ACCOUNTING
Video Overview: The major differences
External vs Internal Users.
Generalised vs Specialised Info.
Historical vs Future Perspective.
Rules-based vs Customised Reports.
Finally, the different overall functions.
External vs Internal Users:
Financial Accounting is meant for those External to the Organisation, who need to get a view inside:
Investors (owners)
Creditors
Tax Authorities & Other Regulators (e.g. SEC or ASIC) * Suppliers & Customers
Employees & Unions
Management Accounting is meant for those Internal to the Organisation, who need info to achieve organisational goals:
CEO
General Managers
Department/Division Managers * Shop Floor Staff
Generalised vs Specialised Info:
Financial Accounting uses the same three (or four) financial statements, to meet the need of a wide variety of users.
Thus, the info is generalised and aggregated and always follows a similar format.
It is also, normally, public information and removes some of the proprietary detail & specifics
Management Accounting reports are normally only produced to meet the needs of a specific decision maker.
Thus the reports are specialised with a level of detail to make a specific decision.
Management Accounting reports are also normally private so nothing need be concealed.
Historical vs Future Perspective:
Financial Accounting is based on historical transactions.
For transactions to be recorded within a financial accounting system they must have been based on past events.
Financial Accounting is primarily backward-looking / historical
Management Accounting, while still sometimes using historical data, is meant to be used for decision making for the future.
Many Management Accounting reports have future orientated data within them, for example within budgets
Management Accounting is far more forward looking than financial accounting
Rules-based vs Customised Reports:
Financial Accounting transactions and reports follow specific rules, i.e. Standards or GAAP
By following rules, Financial Accounting reports emphasis reliability (over relevance) and allow comparability across organisations
Management Accounting reports are not subject to accounting rules, they are customised to specific situations and can take any form.
By not following rules, Management Accounting reports emphasis relevance (over reliability) and each organisation would have their own specific management accounting reports.
Overall Functions:
The functions of Financial Accounting are:
(1) Decision-making
(2) Contracting and
(3) Stewardship
While
The functions of Management Accounting are:
(1) Decision-Making and
(2) Control
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