Definitions
Management Accounting involves preparing reports about business operations which later helps managers make short term and long term strategies and decisions. Meanwhile, Financial Accounting is a branch of accounting which involves recording, summarizing, and reporting of the transactions from business operations over a period of time.
Characteristics
| Financial Accounting | Management Accounting |
| Money Transaction Historical Nature Legal Requirement Disclosure of Financial Status Interim Reports External exposure | Verifiability Objectivity Timeliness Comparability Reliability Understandability Relevance |
Focus
Financial Accounting considers the entire business scenario and reports the bigger financial picture of the organization. In financial accounting, consolidated figures display the overall performance of the company. Whereas, management accounting follows more detailed and focused study of business and organization. Management Accounting is very objective and analytical.
Financial Accounting has both internal and external exposure. Management Accounting is more for internal purposes.
Standards
Management accounting assists managers in informed decision making. Managerial account doesn’t have any known defined accounting standards to follow management accounting. Relatively, in financial accounting, there are various accounting concepts and standards to follow. In financial accounting, there are various accounting conventions that bind the financial accounting. Generally Accepted Accounting Principles (GAAP) is one of such accounting standards.
Orientation
Financial accounting reports have a base of historical data. Information collected or derived during the financial reporting are over a period of time. All the financial statements are a reflection of past activities and operations. In managerial accounting, managers consider the past performance to predict the future. Managerial accounting helps in informed decision making which are for the future. Forecasting and prediction are managerial accounting functions and information from financial accounting stands as a base for such prediction.
Report Consideration
As the name suggests, financial accounting considers only the financial aspects in reporting. All the statements that a company generates for reporting and for understanding the financial position and performance come under financial accounting.
Management accounting considers both financial and non-financial aspects of an organization. Decision making by managers may consider both the financial and non-financial aspects. business model, corporate and other strategies, standards and policies etc. are non-financial but part of managerial accounting.
Reporting and Publishing
Financial statements and reports are prepared for a fixed or defined period of time. Every year companies make financial statements and reports to have a general outlook of the company. Such reports are published for internal or external use. Financial statements need to be structured and audited.
Managerial accounting is prepared whenever it is required. Managerial reports are both financial and non-financial hence management reports are prepared understanding the need of the situation. There is no certain format of reporting and as such reports are for internal use, they may be or may not be published.
Reference