Accounting is a vast subject, it is just like an elephant if you touch its teeth you say that it's as hard as stone and if you touch its skin then you would say it's as soft as wool. The same goes for accounting.
Accounting has many branches, but the two most important branches of accounting are financial accounting and management accounting. If you are a general person or a student of accounting who may want to pursue a higher degree in accounting then this post is for you, here we will discuss the main difference between financial accounting and management accounts, So keep reading.
Financial accounting is the branch of accounting in which we study the financial data of an organization and prepare reports to provide the best financial information for all stakeholders of the organization.
The main key functions of financial accounting are;
- The main aim of the financial accounting is to provide the accurate financial information of an organization for all stakeholders, who may use it to make financial decisions
- Financial accounting data is used by both internal and external parties
- Financial accounting prepares financial statements which are based on historic data
- Financial accounting follows Generally Accepted Accounting Principles (GAAPs) to prepare financial reports
- It covers only financial aspects of the organization
- Financial statements are prepared for a specific time period
- There is always a specified format to present the financial data
- It is a legal requirement to prepare financial statements
The name itself indicates that it's the branch of accounting in which we study the process of identifying, interpreting, analyzing, and communicating the financial data to the managers of the organization who use that to make informed future financial decisions.
Simply stated that it is the accounting for managers within the organization that helps to make prudent financial decisions to maximize the company's profit.
The main objectives of management accounting are;
- Management accounting is to provide the accurate financial information to managers to make the best financial decisions
- Management accounting is always future-oriented and focused on future planning
- Management accounting reports are specifically designed for internal management only
- The GAAPs are generally not applied in managerial accounting
- The is no specific time frame to prepare management reports they can be prepared when needed
- Management accounting helps managers in budgeting and forecasting
- There is no specified format for management accounting reports.
- It helps managers to identify the weakness and threats to the company