Question

Compare and contrast financial accounting and managerial accounting.

Answer 1

Comparison of Financial Accounting and Management Accounting

Although Financial accounting and Management accounting both are branches of accounting, still there are lots of differences between the two.

i) Users - The information provided by the Financial accounting is used by different parties such as Government, lenders, tax authorities, creditors, workers, management etc., while the information provided by the Management accounting is more of use of the management only.

ii ) End product - The end product of Financial accounting is Financial statement whereas the end product of Management accounting is budgets and other reports which provide useful information for effective decision making.

iii) Timing - Under Financial accounting, financial statements are prepared at the end of the year but under Maanagement accounting, reports are made on regular basis.

iv) Orientation - Financial accounting is historiacl in nature since it records the expenses and incomes which have already taken place but Management accounting has future orientation since it involves preparation of budgets and forecasts.

v) Standards - Financial accounting has to comply with different accounting standards while Managerial accounting does not have to comply with any standard as long as the information is compiled for internal use only.

vi) Cost control and reduction- Financial accounting pays emphasis only on recording of cost. It does not provide any methods/techniques for cost control or reduction. Managerial accounting has different tools for cost control and reduction.

vii) Aggregation - Financial accounting reports on the results of the business as a whole. Management accounting provides information about a particular product. department, segment or region.