Difference between Management Accounting and Financial accounting
Financial accounting and management accounting are two different branches of Accounting. Financial accounting is a branch of accounting which deals with recording of financial transactions of business for preparations of financial statements like Income statement and Balance sheet. These financial statements reveal the true financial position of business to all its stakeholders. Whereas, Management accounting records both financial and non-financial information and presents it in the form of reports to management for decision making and policy formulation.
It collects all relevant information about business and presents it to the internal management team for making policies, strategies, and plans for business functioning. Financial accounting is done in accordance with rules provided by GAAP or IFRS while there are no specified rules for doing management accounting. Financial accounting aims to provide financial information to all stakeholders of business including both internal and external users. Management accounting, however, is practiced to serve the information needs of internal management required for decision making.
Difference between Financial and Management Accounting
| Basis of Distinction | Financial Accounting | Management Accounting |
|---|---|---|
| Meaning | Financial accounting is a accounting branch which records financial transactions for preparation of financial statements. It is an accounting system which ascertain financial position of company by preparing financial statements. | Management accounting is a accounting system concerned with recording and providing all relevant information to managers for decision making. |
| Nature of information | Records only financial transactions. | It records both financial and non-financial information. |
| Aim | It aims to provide financial information to all stakeholders including internal and external parties. | Provides information to only internal management team. |
| Timing | Financial statements are prepared at end of accounting periods. Accounting period is generally of one year. | No specific time period. Reports for managers are prepared from time to time as per the requirement. |
| Dependence | Financial accounting does not depend on management accounting for information. | It depends upon financial accounting for various financial information for right decision making. |
| Governing principles | Financial statements are accordance with rules specified in GAAP and IFRS | There is no specified rules and regulation for preparing management accounting reports. |
| Accuracy | It focuses on accuracy of facts and figures recorded as it is verified by auditors. | It focuses on recording wide range of information all of which is not verifiable as it contains predictive information also. |
| Statutory compliance | Financial accounting is statutory required to be done by all companies. | There is no mandatory requirement for doing management accounting. |