Differences Between Management Accounting and Financial Accounting

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MIDDLESEX UNIVERSITY

2008/2009

MODULE NUMBER ACC1130

MODULE TITLE Introduction to Managerial Finance

Coursework 1

STUDENT NAME…………………………..

STUDENT NO:…………………………...

SEMINAR TUTOR …………………………...

Introduction

Accounting is concerned with providing both financial and non-financial information that will help decision makers to make good decisions. An understanding of accounting therefore requires an understanding of the decision making process and an awareness of the users of accounting information. The major purposes of accounting are to formulate overall strategies and long-run plans. Resource allocation decisions such as product, pricing and customer emphasis. Cost planning and control of activities. The measuring of the performance of the company.[1]

The managing director at ABX Co does not understand the difference between financial accounting and management accounting; and therefore is finding it hard to understand why I have proposed the idea of having an assistant to concentrate on management accounting duties. I will be discussing below various elements as to what and how financial accounting and management accounting differ.

Differences between Financial accounting & Management accounting

Financial accounting and Management accounting both produce reports and statements, but it is to whom and when they start to differ. I will be discussing below the major differences between the two branches of accounting which are legal requirements, the focus of segments of the business, the accepted accounting principles and report frequency.

Management accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions. Management accounting data is only accessed and used by those internal to the business.[2]

Financial accounting is the field of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, employees, government agencies, owners, and other stakeholders.[3]

Legal Requirements:
There is a statutory requirement for public limited companies to produce annual financial accounts regardless whether or not management regards this information as useful. Management accounting is entirely optional and information should be produced only if it is considered that the benefits from the use of the information by management.[4]

Focus of segments of the business:
Financial accounting reports describe the whole of the business; whereas management accounting focuses on small parts of the organisation, for example the cost and profitability of products and departments.[5]

The accepted accounting principles:
Financial accounting statements must be prepared to conform to the legal requirements and the generally accepted accounting principles established by regulatory bodies such as the Financial Reporting Council (FRC).[6] However, Management accountants are not regulated by any specific regulatory bodies when providing managerial information. This is because the information and reports produced by management accountants are for internal use only within the organisation. The reports are not published for public use; in contrast, financial statements are prepared for stockholders, suppliers, banks, employees, government agencies, owners, and other stakeholders.

Report frequency:
Financial accounting reports on what has happened in the past in an organisation, whereas management accounting is concerned with future information as well as the past information. Financial accounting statements are published annually and less detailed statements are published semi-annually. It is a minimum requirement for an organisation to produce financial statements annually.

Managers require information quickly if it is to...
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