- Financial accounting
- Management accounting.
Financial accounting is the presentation of accounting information for stakeholders and regulators. It presents the financial position for an entire time period.
On the other hand, Management accounting is the presentation of analysis of business activities to the internal management to facilitate decision making.
Definition of Management accounting
The Institute of Cost and Management Accountants, London, has defined Management Accounting as: “The application of professional knowledge and skill in the preparation of accounting information in such a way as to assist management in the formulation of policies and in the planning and control of the operation of the undertakings.“Similarly, according to American Accounting Association: “It includes the methods and concepts necessary for effective planning for choosing among alternative business actions and for control through the evaluation and interpretation of performances.”
How is Management accounting different from Financial accounting?
Financial accounting and management accounting have some inherent differences. They areBasis for Comparison | Management accounting | Financial accounting |
Purpose | It is used for internal purpose | It is used for external reporting primarily, although the management also reviews it |
Regulation | It is not regulated by any law | It has to be presented as per standards |
Users | Its users are the management of an organization | Its users are shareholders, investors and regulators |
Objective | It aids in internal decision making | It aids in investment decision by outsiders and monitoring by regulators |
Mandatory | Preparation and presentation of financial statements is not mandatory | Preparation and presentation is mandatory. |
Audit | It is not subject to audit | Financial statements must be audited |
Frequency | There is no defined frequency for preparation and presentation of the statements | Financial statements must be prepared for the financial year and presented |
Contents | Management accounts include both monetary and non-monetary information | Financial accounts include only monetary information |
What are the benefits of Managerial accounting?
Management accounting is very beneficial and hence is being used widely now. The benefits are as follows:- Planning
- Decision making
- Identify early signs of problems
- Strategic management
Functions of managerial accounting
Managerial accounting performs the following functions in general- Profitability
- Break even analysis
- Forecasting
- New product analysis
- Stock valuation
- Variance analysis
- Capital budgeting analysis
- Aids in Financial accounting