Distinction between Management and Financial Accounting
1. Management Accounting is a dynamic process. We have to rearrange the data furnished by the financial accounting for the modern busy management of large scale business concerns. The difference between the two is based partly on the use of accounting, data, partly on the degree of information supplied, partly on the emphasis for which data are supplied and partly on the methodology through which the data are collected.
2. Financial Accounting is confined to the preparation of financial statements for the use of outsiders like debenture holders, creditors and banks and also for the information of shareholders to show the manner in which the business operations are conducted during a specified period. But Management Accounting concerns itself with the presentation of statements containing information for management.
3. Financial Accounting has as one of its objects, the furnishing of information to outsiders who have a right to sell the same under certain well-defined and accepted principles and rules. Management accounting on the other hand need not conform to the standards or rules laid down for the use of outsiders.
4. Financial Accounting generally deals with the whole of the business. While Management Accounting deals with the several divisions of the business.
5. Financial Accounting is absolutely compulsory but Management Accounting is only optional.
6. Financial Accounting is mainly concerned with historical information. But Management Accounting is concerned not only with the past information but also with information about the future.
7. In Financial Accounting there is the recording of business transactions in which the values of the assets and liabilities are ascertained on a specified date by the preparation of a balance sheet, expenses and incomes are summed up in the profit and loss account for a specified period ad the result of trading is ascertained. In management accounting the two main terms are planning and budgeting with the help of which the management will be in a position to forecast the future possibilities.
8. Financial accounting will not reveal whether the plans formulated and the decisions arrived at by the management are being followed rigidly but Management accounting will reveal them.
9. In Financial accounting, records are maintained in the form of personal, real and nominal accounts. But in Management accounting costs and revenues are mostly separated by responsibility centers or profit centers.
10. Financial Accounting statements are prepared on the basis of generally accepted accounting principles. But Management accounting does not have such accounting principles.
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