This article provides a brief overview of the differences between financial accounting and management accounting systems. But first, let's find out what the accounting is.
What is Accounting? Accounting can be financial, financial, financial analysis and reporting, information about the business organization. Business Accounting, as we understand it today, includes financial accounting and management accounting. There is something in the two parts of the business system, and there are also differences.
As part of the business accounting system, these two aspects differ in many respects.
The first difference is the structure or format of the display of information. Financial accounting has one single impression structure, which means that information about the corporate business system is more or less equal. The final financial statements of financial accounting are divided into three basic financial statements:
– Income Statement / Profit and Loss Statement
– Statement of Changes in Financial Position.
The balance sheet shows the financial status of an organization at any time. The income statement includes the financial performance of the organization over a specified period of time, usually one year. The financial flows of an entity are inflated and outflow within a certain period of time in the statement of changes
The prepared financial statements are based on an equation or model, which means that each entity presents its financial statements in a consolidated structure. This would mean that financial accounting has a unified structure.
First of all, financial statements are generally used by individuals outside the organization, such as shareholders, creditors, government, the general public, and the like. These people also receive such reports from other organizations and maintain uniformity in the financial statements, the financial accounting system uses a unified structure.
On the other hand, management accounting primarily affects in-house management. Because accounting statements are internally used, depending on their structure, they change in organizational form, depending on the circumstances and requirements of individual use. Therefore, management accounting is tailored to the needs of the organization's management
The next difference is based on generally accepted accounting principles. The financial account is prepared in accordance with Generally Accepted Accounting Principles, abbreviated as GAAP. Preparing the financial statements prepared in accordance with GAAP ensures that account statements are drawn up in accordance with the general guidelines prescribed by law.
On the other hand, management accounting is an in-house requirement and is the sole use of management of the organization. These management accounting statements are never made available to outsiders, so they can be formulated in the way defined by internal management.
The third difference between financial accounting and management accounting is the statutory requirement to produce invoices. As mentioned above, the financial statements are only for people outside the organization who are interested in the organization's business. There are shareholders who use the information in the financial statements to decide whether to invest in the organization. The law requires these statements to be prepared and this is a legal obligation. In fact, corporate law not only makes it mandatory to make such accounts but also sets out the structures on which these financial statements are to be prepared.
The fourth difference is reflected in the historical accounts. As mentioned above, there are three types of financial statements available. During these three years, the balance sheet and the profit and loss account are prepared to report on a financial situation for a given time and on the results of the operation of the organization within a specified period of time, and a statement of the changes in the financial situation is the source of inflows and outflows of resources over a certain period of time. Therefore, financial statements record historical data. On the other hand, management accounting does not record the financial history of the organization.
The fourth difference relates to the segment reporting. Financial accounting applies to the whole business, although some organizations segment the accounts of the different operating centers. But as the financial statements are presented, they show the whole business. By contrast, the management accounting system can provide a segmented approach.
Finally, financial accounting and management accounting differ from the ultimate goal. Financial Accounting is specifically designed for external reporting where management accounts are for internal use only.
In this short presentation, it became clear that financial accounting is different to management account management. Both accounting systems are vital for all business scenarios and are mandatory in the corporate environment.
Source by sbobet