Financial and Management accounting is traditional type of accounting used in modern business world by all types of organizations. This is generally concerned with to record the transaction in books of accounts in such a way that profit of the business operations at a particular period and financial position of the business firm can be known.
Accounting for revenues, expenses, assets, liabilities and other financial information are commonly carried in the general office of business is called financial accounting. The financial accounting information is expressed in two types of financial statements, i.e,
- Profit and Loss account, Income and expenditure account. (to match the income/profit with expenses of the accounting period to know the profit or loss)
- Statement of affairs/ Balance sheet of the business for year (showing assets and liabilities, revealing financial position as on the date).
The financial accounting is guided by various rules and regulations, some of which are mandatory. Financial accounting information is used by different users it may be internal/ external users. Company accounting information is governed mostly by auditors.
There is no separate set system for corporate accounts, but it may be any form of accounting system, it enables a business to be conducted more effectively and efficiently. It means this is a system that collects, classifies, summaries, analyses and reports information that will assist management in discharging its functions and in their decision making and control activities. Unlike financial accounting, where the main objective is on reporting to outsiders, whereas management accounting mainly focuses on internal planning, reviewing and control various activities. Cost and management accounting is like a backbone of any accounting firm.
The main object of financial accounting is to provide information to outside users such as shareholders, creditors, investors, government authorities, financial institutions, and other interested parties etc. The analysis and interpretation of financial data contained in the income statement and the balance sheet enable persons interested in the business to make meaningful decisions to know the actual profitability, liquidity and solvency of the business firms.
In Financial Accounting, the accounting process are by way of firstly – identifying, recording, classifying, summering, analyzing and interpreting in structured manner, and report to concerned persons, with a view to preparing results of operation in the form of profit and loss account or income statement and balance sheet, indicating the financial position of the business at the end of that relevant period.
Financial and Management accounting Principles
There is no separate set system for management accounts, but it may be any form of accounting system, it enables a business to be conducted more effectively and efficiently. Management accounting is a system that collects, classifies, summaries, analyses and reports information that will assist management in discharging its functions and in their decision making and control activities. Unlike financial accounting, where the main objective is on reporting to outsiders, whereas management accounting mainly focuses on internal planning, reviewing and controlling of various activities.
It needs the collection, analysis and interpretation not only financial or cost data, but also other data such as sales, purchase, price, product demands and measures of physical quantities and capacities. In the process, the system utilizes all techniques of financial and cost accounting including marginal or direct costing, standard costing, budgetary control, etc.
It is mainly relating to providing economic information to managers for achieving organizational goals. Managers at each level must have a clear understanding about the objectives and goals assigned and receiving flow of relevant information. Management is needed the timely action for discharging it function, for that the required information is not be any wrong picture.
Difference Between Financial and Management Accounting
Financial accounting is mainly focus on accounting of monetary transactions of the business, i.e focus on quantitative information whereas it mainly deals with both quantitative and qualitative information, control activities and to take appropriate decision making.
Financial accounting is aim with preparation profit and loss account to know the profit of the operations and balance sheet is prepared for to know the financial position of the business. Managerial accounting is concerned with providing information to managers i.e. person inside an organization who direct and control its operations.
In Financial accounting information should be quantitative and mandatory nature, whereas in accounting it may be quantitative and qualitative; Monetary and non-monetary. Financial accounting is mainly report to shareholders, creditors and other interested parties while it mainly report to internal management for internal control and decision making purpose.
Under financial accounting it has a format of financial accounts is determined by several different regulatory elements: Company Law, Accounting Standards etc. They can be as detailed or brief as management wish.
Originally posted 2014-08-31 11:27:47.