Distinguish between financial accounting and management accounting.

Question

Accepted Answer

Financial accounting and management accounting both draw on accounting data, but they differ in objective, users and method. The main points of difference are set out below.

| Basis of comparison | Financial Accounting | Management Accounting |
|---|---|---|
| Main objective | To ascertain and report the overall profit/loss and financial position | To provide information to management for planning, decisions and control |
| Primary users | External parties — owners, investors, creditors, tax authorities | Internal management at various levels |
| Statutory requirement | Legally compulsory for most enterprises | Optional — kept only if management finds it useful |
| Time focus | Mainly historical — records the past | Mainly future-oriented — planning and forecasting |
| Format | Follows a prescribed statutory format | No fixed format; designed to suit the purpose |
| Coverage | Records the whole business in aggregate | Selective — deals only with the matter in hand |
| Type of information | Chiefly monetary information | Both monetary and non-monetary information |
| Precision | Aims at accuracy and exactness | Uses estimates where speed and relevance matter more |
| Period of reporting | Usually once a year (plus half-yearly/quarterly) | Whenever management needs — monthly, weekly, daily |
| Audit | Its statements are subject to statutory audit | Generally not subject to statutory audit | …

Q.Distinguish between financial accounting and management accounting.

Concept understanding — Management Accounting Compared with Financial and Cost Accounting

Basis of comparison	Financial Accounting	Management Accounting
Main objective	To ascertain and report the overall profit/loss and financial position	To provide information to management for planning, decisions and control
Primary users	External parties — owners, investors, creditors, tax authorities	Internal management at various levels
Statutory requirement	Legally compulsory for most enterprises	Optional — kept only if management finds it useful
Time focus	Mainly historical — records the past	Mainly future-oriented — planning and forecasting
Format	Follows a prescribed statutory format	No fixed format; designed to suit the purpose
Coverage	Records the whole business in aggregate	Selective — deals only with the matter in hand
Type of information	Chiefly monetary information	Both monetary and non-monetary information
Precision	Aims at accuracy and exactness	Uses estimates where speed and relevance matter more
Period of reporting	Usually once a year (plus half-yearly/quarterly)	Whenever management needs — monthly, weekly, daily
Audit	Its statements are subject to statutory audit	Generally not subject to statutory audit

Q.Distinguish between financial accounting and management accounting.

🎓Unlock everything free for 14 days

Unlock everything free for 14 days