The Differences Between Financial and Management Accounting
Many people may think that financial accounting and management accounting are the same. However, there are major differences between both jobs even though they rely on the same financial data. There are plenty more differences including who the reports are for, the importance of the past and the future and the type of data given to the users. Let’s read below to know more!
1) Future Importance!
Planning is very important in a manager’s job for the near and distant future. The present changes in the world including the economic status would need revising for future decisions. On the other hand, financial accounting takes a look at what has happened in the past through the financial transactions which will be useful for future planning.
The data provided by financial accounting needs to be relevant information for a particular problem. This is most useful for the managers when they make decisions even if a problem cannot be supported.
Decisions can be very important to a manager than precision. Though it may take some time for a decision, any estimates made sooner can be more beneficial than a week later. One example of a decision would be to record revenue statements. Instead of full revenue statistics, the nearest million would be acceptable. Management accounting holds less importance to precision due to both the cost and the resources but more emphasis is put upon non-monitory data such as customer satisfaction.
4) Concerns of segments!
Financial accounting holds more weight on reporting as a whole company but does require some work on a few segments while management accounting focuses on separate parts of the company. This is the primary importance of management accounting while financial accounting holds this as a secondary.
All statement that is prepared from the financial accounting sector has to match accordingly to the GAAP (Generally Accepted Accounting Principles) known as the ground rules. The reason why financial information has to follow the GAAP is because their information is needs to be disclosed to the public. This is the benefit for the user who does not have much knowledge about general working of entity.
6) What is important and what is not!
Financial accounting needs to be done. It is because many third parties require regular financial statements. Management accounting is optional. Any company are free to do little or as much as they wish.
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