ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Business Accounting basics: management accounting and financial accounting

Updated on October 13, 2010

What is accounting and who are the users of accounting?

Accounting is financial information relating to a business. The users may be managers, lenders, suppliers, investment analysts, community representatives, government, employees and their representatives, competitors, customers and owners. In accounting, a distinction is often made between what is termed “management accounting” and what is termed “financial accounting”.


Management accounting is internal reporting to managers within organizations, which is concerned with the provision, financial and statistical information to managers to make decisions about the ways in which an organization’s resources should be allocated, and help them carry out their management and control functions.


By contrast, financial accounting is external reporting, which is concerned with the provision of information to users other than managers. Most organizations publish periodic financial statements which provide external groups with information about the results of past activities, for use in investment, raise capital, income tax and variety of other applications. However, it is also generating information for use internally, indicating expectations for future, in order to assist management in planning activities and allocating resources for forthcoming periods.


What are difference between financial accounting and management accounting?

According to Mclaney Atrill, there are six main areas of difference which can be summarized as Nature of the reports produced, Level of detail, Regulations, Reporting interval, time orientation and range and quality of information.

  • Nature of the reports produced. Financial accounting reports tend to be general purpose. The most of it are monetary nature. On the other hand, Management accounting reports are often specific- purpose reports, they are designed either with a particular decision in mind or for a particular manager, such as analysis of employee, sales volume and customer transactions. For few businesses, it has a financial nature.

  • Level of detail. Financial accounts concentrate on the ‘macro’ analysis of business rather than analysis the component parts of the business, they may be aggregated and no details. However, Management accounting reports often focus on specific area of business and provide managers with considerable details like 4Ps (Place, product, price, promotion).

  • Regulations. Financial accounting reports are produced by several different standards of content and format, which are imposed by company law, stock exchange and other rule makers. But there is no pre-determined format for management accounting. They can be designed to meet the needs of particular managers.

  • Reporting interval. Most financial accounting reports are produced on an annual basis, less likely to produce half-yearly or quarterly. Dissimilarly, management accounting will be prepared when required. It can be any period.

  • Time orientation. Financial accounting reports reflect the performance and position of the business for the past period. For few purposes, it is used for making judgments about future. However, management accounting reports often present a future perspective as well as past perspective on the performance of the business.

  • Range and quality of information. Financial accounting places greater emphasis on the use of objective and verifiable while management accounting may be less objective and verifiable.


Why is management accounting and financial accounting important for business?

Firstly, it is indispensable for managers to make decisions which concern whether to continue with certain business operations invest in particular projects and sell particular products. Secondly, the business has to provide financial information of a specific format for government to collect taxes. Otherwise, it will be responsible to the legal liability. What’s more, it is also an important basis for raising capital, seeking investor, combining business and entering new business.

(By Cong Zhou)

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)