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Comparison of FA with MA

Financial Accounting Vs Management Accounting

A common question is to explain the differences between Financial Accounting and Managerial Accounting, since each one involves a distinctly different career path. In general, Financial Accounting refers to the aggregation of accounting information into Financial Statements, while Managerial Accounting refers to the internal processes used to account for business transactions. There are a number of differences between Financial and Management accounting, which fall into the following categories:

• Aggregation  - Financial accounting reports on the results of an entire business. Managerial accounting almost always reports at a more detailed level, such as profits by product, product line, customer, and geographic region.

• Efficiency -  Financial accounting reports on the profitability (and therefore the efficiency) of a business, whereas managerial accounting reports on specifically what is causing problems and how to fix them.

• Proven information - Financial accounting requires that records be kept with considerable precision, which is needed to prove that the financial statements are correct. Managerial accounting frequently deals with estimates, rather than proven and verifiable facts.

• Reporting focus - Financial accounting is oriented toward the creation of financial statements, which are distributed both within and outside of a company. Managerial accounting is more concerned with operational reports, which are only distributed within a company.

• Standards - Financial accounting must comply with various accounting standards, whereas managerial accounting does not have to comply with any standards when information is compiled for internal consumption.

• Systems - Financial accounting pays no attention to the overall system that a company has for generating a profit, only its outcome. Conversely, managerial accounting is interested in the location of bottleneck operations, and the various ways to enhance profits by resolving bottleneck issues.

• Time period - Financial accounting is concerned with the financial results that a business has already achieved, so it has a historical orientation. Managerial accounting may address budgets and forecasts, and so can have a future orientation.

• Timing - Financial accounting requires that financial statements be issued following the end of an accounting period. Managerial accounting may issue reports much more frequently, since the information it provides is of most relevance if managers can see it right away.

• Valuation - Financial accounting addresses the proper valuation of assets and liabilities, and so is involved with impairments, revaluations, and so forth. Managerial accounting is not concerned with the value of these items, only their productivity.:

When consider about the above comparison, you may find some technical words that you need to be familiar with, those will be discussed soon as per the definitions of  IASC.

Thank you.

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What is Accounting......

What is Accounting & why is it needed....??

Before getting in to complex areas we should have enough understanding about the area.

Let's move on to a definition from one regulatory body.

American Institute of Certified Public Accountants (AICPA), defines accounting as "The art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in parts at least of financial character and interpreting the results thereof."

So, simply look at the above underlined words and try to understand what we do in accounting.

And then, you may question what is the purpose of Accounting..???

The primary aim of Accounting is to provide information to the wide range of users of Financial Statements to make economic decisions.

So, next we need to identify who are the wide range of users of Financial Statements.

                                       Wide Range of Users

                                                       ↙↘

             Internal users                                      External Users

        - Owners/Shareholders                               - Suppliers

        - Management                                             - Rivalry companies

        - Employees                                                - Customers

                                                                            - Government

                                                                            - Investors

 When considering all above parties, we can say that above users/stakeholders have their interest on financial information due to the intention of maximizing their own self interest.

Let's see what their intentions are.

* Owners/ shareholders - As their intention is maximizing profits, they always keep their eye on financial information and use those financial information to decide whether to keep their investment/ further invest or withdraw their funds if the business is not performing well.

* Managers & employees - As their intention is acquiring higher rate of salaries, bonuses and other benefits, they keep interested their minds to focus on the performance of the business and financial information.

*  Suppliers - We can identify supplier's intention as maintaining long term business relationship, supply goods on credit and to ensure the recoverability of the funds.

* Rivalry companies - They are interested on financial information of  a considering company, due to the market competition and with the intention of achieving market capitalization.

* Customers - As an outside or external stakeholder, customers expect something back from the companies, such as fulfilling their corporate responsibility and campaigns etc..

* Government - They keep their eye of financial information of a considering entity due to earn their income through Income Taxes and as well as, if the considering industry is making continuous losses, provide subsidies to uplift the industry. On the other hand, if the industry is making supernatural profits, they keep eye on the business whether they violate the minimum prices or whether customers are charged high. 

* Investors - Investors keep their eye on financial information due to the risk of their investment made,or others to decide whether they are going to invest on this company or withdraw their funds, Furthermore, financial information of a same industry gives information to investors whether bad performance of the firm due to a failure of the firm or the industry.

Please make sure that above list is not the exhaustive list of users of Financial information and there are more..

So, we discussed what is meant by Accounting and why it is needed through above paragraphs.

Don't forget to Like, Comment and Share if above details were important to you.

Let's meet with another interesting topic.

Thank you.