Comparison of Financial Accounting and Management Accounting

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Accounting plays an important role in the life of organizations. There are several types of accounting such as financial, management and governmental accounting, taxation, audit. These types are usually focusing on different types of users that are interested in different types of information. In this essay I will examine the differences between financial accounting and management accounting. The basic difference between financial and management accounting is their target group. Management accounting provides information to the internal people of a given organization such as managers, controllers. The main aim of financial accounting is to give information to the people who are outside of a given company, such as creditors, stockholders, suppliers. One of the key functions of the management is the planning. During this process the management has to plan the future sales, productions, and expenditures, which results from an investment. Usually the management has to make comparisons between investments and the best option has to be chosen. The calculations of the managers are based on the data of the past but their predictions are based on their information about the future. Therefore in management accounting the past data and the future data or information are equally important. Financial accounting is focusing to the past, or in other words its focusing to the factual data. These are important for the outside users who are not really interested in predicted numbers and data because these are not factual information. These users are banks that use the financial information in the credit decision making process or the investors that wants to decide whether to buy a share of a given company or not, and sometimes the suppliers use these information to check their new customer’s credibility. Another key function of the management is the controlling. During this process the managers can compare their previous expectations with the factual data. They can get a clear...
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