What is the difference between financial accounting and management accounting?
Financial accounting and management are both important tools for a business, but they serve different purposes. A business uses accounting to determine its future operating plans, to review past performance, and to review current business performance. Financial management accounting has a different audience, because investors are usually not involved in the day-to-day activities of the business, but are concerned about their investments, while managers need quick information to make decisions about the day-to-day business.
Management accounting is internal, while financial accounting is intended for external stakeholders. Although financial management is of great importance to current and potential investors, management accounting is necessary for managers to consider current and future financial decisions. Financial accounting is accurate and must adhere to all generally accepted accounting principles (GAAP), but managerial accounting is often more than a guess or estimate, as most managers do not have the time for exact figures when making decisions.
The purpose of financial accounting is to provide financial information and the results of operations and cash flow, while the purpose of managerial accounting is to provide information needed by management for planning, control and decision making.
Users: financial accounting, internal organization and external management accounting users.
Accounting standards: Compliance with accounting standards is mandatory in financial accounting, but compliance with accounting standards is not mandatory in managerial accounting.
Reporting type: In financial accounting, it is limited to basic financial statements, but in management accounting, it depends on management needs.
Unit of measurement: in financial accounting, it is only money, but the unit of measurement of management accounting can be any unit (weight, volume, level, etc.).
Report content: In financial accounting, it is retrospective and real, but in managerial accounting, it is prospective and estimated.
The basis of valuation: in financial accounting, historical cost, in management accounting, the emphasis is on current prices.
Emphasis on the quality of information: in financial accounting, it is reliable, but in managerial accounting, the emphasis is on relevance.
Adherence to accepted standards and principles of accounting: In financial accounting, it works based on principles and standards, but in managerial accounting, it is completely the opposite.
Types of reports: In financial accounting, it is limited to financial statements, in managerial accounting, it depends on managerial needs and does not follow specific rules.
Comprehensiveness: in financial accounting, it puts activities as a set, in managerial accounting, it emphasizes each activity in the framework of all activities.
Information providers: In financial accounting, there are independent and financial accountants, in management accounting, management, industrial accountants and others.
Relationship with specializations: Financial accounting is not related to other specializations, but management accounting is related to other disciplines such as finance, economics, operations research, statistics and mathematics.
General view: The general view is financial accounting as the final result, but managerial accounting is as a tool for the final result.
Financial Tax Group of Iran Consultants Authority
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This post is written by Arambnamkhda