Distinction between Financial Accounting and Management Accounting

Financial and Management Accounting are inter-related. Financial accounting

records day-to-day financial transaction. Management accounting depends on
financial accounting which is its main source of information. Main objective of
financial accounting is to ascertain profit and depict the financial position of a
business. The main objective of management accounting is to provide information
to the management for decision making. Inspite of theclose relationship between
financial accounting and management accounting, there are differences between
them which are explained below.
(1) Purpose: The purpose of financial accounting is to ascertain profit loss
by preparing profit and loss account, reveal the financial position through the
balance sheet and present them to owners, creditors, government, etc. The
Purpose of management accounting is to provide information to the management
for decision making on internal operations. Therefore while financial
accounting
is concerned with external operations. Therefore while financial
accounting is
concerned with external reporting, management accounting is concerned with
internal reporting.
(2) Nature of information used: Financial accounting records transactions
as and when
they occur i.e., recording the past while management accounting is
Concerned with future plans and operations. Thus, financial accounting is
historical and objective, while management accounting is
to the future. subjective and relates
 1.12 Management Accounting
3) Analysis and Interpretation of Data: Financial accounting analyses data
of the business as a whole i.e., the financial accounting provides consolidated
information of the whole enterprise. Management accounting evaluates the
perfomance of different department, divisions and as per the requirements of
the management.
(4) Flexibility: Financial accounts are prepared as per the guidelines laid
down by Companies Act and Income Tax Act, whereas management accounting
follows the requirements of the management in the preparation of various
statements. The management accountant has flexibility in following different
standards set by the management, whereas financial accountant has no such
freedom.
5) Legal Requirements: Financial accounting has become compulsory as
per the statutory requirements. Management Accounting is of voluntary adoption
by the management to function effectively.
(6) Frequency of Reporting: Periods reporting is the feature of financial
accounting. Accounts are financial at the year end to be reported to the external
users whereas frequent
reporting of performance of various activities is the feature
of management accounting. Prompt and
quick reporting is the main feature of
management accounting.
(7) Emphasis of Principles: Financial accounting records the transactions
as per established conventions and principles.
not have any set of rigid
Management accounting
does
principles. The manner of presentation depends on the
requirement of the firm
(8) Audit: Financial Statements
prepared under financial accounting system
are
published for the information of general public incase-of Public Limited
Companies. The financial statements are audited by a
The Chartered Accountant.
management accounting,statements and
purpose and they are not subject to audits. reports are means for. internal
9) Format of Statements: In
financial accounting system the
statements are
prepared under different forms as revenue, financia
accounts and property
accounts, etc. In management
capital, persona
incomes are reported accounting
by various responsibility entries. Therefore expenses
and

accounting and financial accounting differ on managenicin

(10) Unit of Account: methodology also.
Financial accounting considers the whole
Financial statements prepared under enterpi
as a
single unit of account.
accounting system reveal the
operating
financia
ounting presents reports relating results of an entire fim.
to the
Manage
wise
performance is reveàled. whole.concem
and also divisio
Nature and Scope of Management Accounting 1.13
Distinction between Management Accounting and Cost Accounting
Cost accounting and Management accounting are two moderm branches of
accounting. Both the systems involve presentation of accounting data for the
purpose of decision making and control of day-to-day activities. Cost accounting
is concerned not only with cost ascertainment, but also cost control and
managerial decision making. Management accounting makes use of the cost
accounting concepts, techniques and data. The functions of cost accounting
and management accounting are complimentary. In cost accounting the emphasis
is on cost detenmination while management accounting considers both the cost
and revenue. Though it appears that there is overlapping of areas between cost
and management accounting, the following are the differences between the two
systems.
(1) Purpose: The main objective ofcost accounting is to ascertain and control
the cost of products or services. The function of management accounting is to
provide information to management for efficiently performing the functions of
planning, directing, and controlling.
2) Emphasis: Cost accounting is based on both historical and present data,
whereas management accounting deals with future projections on the basis of
historical and present cost data.

(3) Principles and Procedures: Established procedures and practices are

followed in cost accounting. No such prescribed practice are followed in
Management accounting. The analysis is made and the resulting conclusions
are presented in reports as per the requirements of the management.
whereas
(4) Data Used: Cost Accounting uses only quantitative information
information.
management accounting uses both qualitative and quantitative
financial accounting, cost
(5) Scope: Management accounting includes, whereas Cost
accounting, budgeting, tax planning and reporting management,
to
and control.
cost ascertainment
accounting is concerned mainly with