In the day to day execution of normal activities as well as for the more important task of decision making or formulating strategies. In essence, this branch of accounting Identifies, measures, analyzes, Interprets data and communicates information for the sole purpose of monitoring and control of activities to achieve the cost optimization goal. How Is Management Accounting deferent from Financial Accounting?
Purpose: Management accounting is basically for the people within an organization for the purpose of planning and control while financial accounting is mainly for those outside It, such as shareholders and creditors Legality: Financial accounting is a statutory requirement while management accounting is not. Scope: Financial accounting covers the inure organization while management accounting may be concerned with particular products or cost centers. Statements and Reports: Financial Accounting reports the results of a financial year
In the form of Balance Sheet, Cash Flow Statement and Income Statement. The reports generated by Management Accounting are sales Forecasting reports, Budget analysis and comparative analysis, Feasibility studies, Merger and consolidation reports. Principles Followed: Financial accountants always follow Generally Accepted Accounting Principles set by professional bodies in each country or International Financial Reporting Standards (FIRS), Management or managerial accountants make use of procedures and processes
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Nature: Management Accounting provides top management with reports that are future-oriented, while Financial Accounting provides reports based on historical facts and data. Periodicity: Management Reports can be weekly, bi-weekly or monthly . There is no time span for producing Managerial accounting statements but financial accounting statements are generally required to be produced for the period of 12 previous months. 1 OFF discretion .
There is no statutory requirement for an organization to use management counting, but publicly traded firms (limited companies or whose shares are bought and sold on an open market) must, by mandate, prepare financial account statements. Auditing Requirement: In management accounting systems there is no mandatory requirement for an independent external audit, but financial accounting annual statements must be audited by an independent Chartered Accountant’s firm.