Differences Between Financial Accounting and Management Accounting
The purpose of this report is to discuss principles of and similarities and differences between financial and management accounting and to highlight how management accounting could be used to improve TVD’s performance. In particular, one of the management accounting techniques, benchmarking, is used as an example of how MA can help a business to run successfully.
Today, accounting is an important aspect of business. The primary idea is to present financial and non-financial information so that the company can make good decisions and succeed financially. In other words, for a business or organisation to be able to communicate and exist there is a demand of accounting.
There are two main types of accounting: financial accounting and management accounting.
Purpose of financial accounting
The main purpose of financial accounting is to record and summarize all transactions made over a particular period of time (usually a year) and to arrange these facts into a financial statement that can be communicated and analyzed. This information plays an important role for shareholders, who want to know how the business is performing and whether it makes profit or loss. The financial accounting is also of interest to other external users who are interested in organization’s performance, such as creditors, banks, potential investors, customers, tax inspectors and employees.
Purpose of management accounting
In contrast, management accounting is used for internal control, for example: planning, forecasting, performance measurement and decision-making. In other words, management accounting provides information for people inside the organisation, e.g. managers, to help them control the business and make decisions for the future.
Similarities between financial and management accounting
Although there is a difference in the type of information presented, financial and management accounting have some common characteristics. According to Upchurch
References: Drury, C. (2004) Management and Cost Accounting (Sixth edition). London: Thomson Learning. Drury, C. (2008) Management and Cost Accounting (Seventh edition). Hampshire: Cengage Learning. Upchurch, A. (2002) Cost Accounting Principles and Practice. Essex: Pearson Education Limited. Word count: 1,143