Q2. Distinguish between management accounting and financial accounting.
| Financial Accounting
| Management Accounting
| Financial accounts are supposed to be in accordance with a specific format by IAS so that financial accounts of different organizations can be easily compared.
| No specific format is designed for management accounting systems.
| Planning and control:
| Financial accounting helps in making investment decision, in credit rating.
| Management Accounting helps management to record, plan and control activities to aid decision-making process.
| External Vs. Internal:
| A financial accounting system produces information that is used by parties external to the organization, such as shareholders, bank and creditors.
| A management accounting system produces information that is used within an organization, by managers and employees.
| Financial accounting focuses on history.
| Management accounting focuses on future.
| Financial accounting reports are primarily used by external users, such as shareholders, bank and creditors.
| Management accounting reports are exclusively used by internal users viz. managers and employees.
| preparing financial accounting is the work of finance department.
| managerial accounting is not specific task of particular department. co-ordiantion of all department creates management accounting.
| report frequency:
| well defined - annually, semi-annually
| whenever needed - daily, weekly, monthly.
| Mandatory Vs. optional:
| Preparing financial accounting reports are mandatory especially for limited companies.
| There are no legal requirements to prepare reports on management accounting.
| Time span:
| Financial accounting statements are required to be produced for the period of 12 months.
| No specific time span is fixed for producing financial statements.
| Monetary Vs. non-monetary:
| Most financial accounting information is of a monetary nature.
Please join StudyMode to read the full document