Financial and management accounting has a specific purpose, although both methods use the same financial information from a company. Financial accounting is aimed at external users, establishes reporting periods, allows it to be used for general purposes, includes summary reports, and must comply with national accounting standards. Management accounting has internal users, requires periodic reports, focuses information for future decisions, is specific to parts of the company, and includes only relevant data. Companies often use both types of accounting, although there are apparent differences between the two.
At the same time, management accounting is increasingly in demand as a single set of technologies that accumulates and analyzes the information necessary to manage the company, its structural divisions, and business segments. Unlike accounting, management accounting is not regulated by the state and is hidden from prying eyes. Therefore, it is not entirely clear to many accountants, managers, and owners of small organizations. Management accounting is the task of the financial service of the enterprise: a financial manager or financial director. Still, this function is assigned to the enterprise accountant in many small and medium-sized businesses.
The Main Tasks of Accounting
The main tasks are:
- Cost calculation, accounting, and planning of expenses for the reporting period, expenditures for capital investments, and investments
- Analysis and control of expenses by-products, segments, directions, and divisions
- Accounting, analysis, and planning of the results of activities by nomenclature groups, directions, responsibility centers, and divisions
Requirements For a Management Accounting System
- Efficiency – the availability and availability of data when needed to decide
- Flexibility – providing a multi-variant methodology for solving specific problems in constantly changing conditions.
- Sufficiency – sufficient volume and quality of information for making effective management decisions.
- Objectivity – fixing operations’ economic essence, not accounting or legal.
- Economic feasibility – management accounting should benefit the enterprise, and its costs should not exceed its benefits.
Difference Between Management Accounting and Financial Accounting
The focus on financial and management accounting is also different. The first focuses on reporting net income and company profits from business operations. Management accounting often concentrates on internal cost control. If a company cannot correctly control costs, each product produced costs more money. It requires the company to increase prices or reduce costs, as low margins are generally not sustainable. Combining two accounting systems is often integral to running a successful business. At first glance, management accounting may seem separate and independent from accounting. But it’s not. Management accounting is related to financial accounting. When organizing it, the same data is used when conducting accounting. Only non-financial information about individual elements of the enterprise’s activities is added to financial indicators. And the data itself is decoded in detail and analyzed in dynamics. These features of management accounting allow management to control the situation in the company, predict performance, and influence profits.
State Regulation
Accounting is mandatory for most companies (except individual entrepreneurs and representative offices of foreign organizations). It is regulated by accounting standards and considers transactions as required by law. Management accounting is optional.
It is not subject to regulations, rules, or standards. It is conducted in free form at the request of the management of a particular organization. The only thing that can affect the filing of management reporting is the internal standards and rules of the organization.
Different Respondents and Tasks
Financial accounting, like tax accounting, is carried out for reporting to external users (shareholders, creditors, government agencies, and other organizations that are not part of the structure of the enterprise). Accounting provides general information about the company’s financial position and its activities’ results. Such reports are provided to the regulatory authorities regularly at specific intervals. Management accounting is internal documentation that business owners and managers need to manage a company. Accounting allows you to identify problems and resources in the organization and scan the situation for individual types of products, business processes, and departments.
Access To the Information
Management accounting contains commercial information, such as cost or cost of production, that characterizes a company’s competitive advantage. Only a limited number of people have access to such information: top management, responsible managers, and financial specialists who prepare reports.
Different Interpretations of Data
Because he is jokingly called posthumous, financial accounting records the history of business transactions. It reflects only the quantitative side of the life of the organization. And management accounting also considers the qualitative characteristics of various segments of the company’s activities and allows you to predict business performance in the future.
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