Question

1. Identify and discuss any differences between Financial Accounting and Management Accounting.

Answer 1

Financial accounting is the system that focuses on the maintenance of the accounting records and the preparation of the financial statements in order to provide the interested users the financial information they would need.

Management accounting, on the other hand, is the system which provides the information to the management for making policies and strategies for running the business effectively.

Few differences between the 2 are as follows:

1. Financial accounting is mandatory for any organisation whereas management accounting is optional for an organisation.

2. Financial accounting depicts the financial position of an organisation whereas management accounting helps in decision-making.

3. The target audience for the financial accounting records are those external (for example - investors, regulators, creditors) to the organisation whereas for the management accounting, it is the those internal (for example - top management and policy mankers) in the organisation.

4. The focus of financial accounting is on the past transactions whereas the focus of the management accounting is on the future decision-making for the organisation.