Compare and Contrast between Management Accounting and Financial Accounting

Q. Compare and Contrast between Management Accounting and Financial Accounting.

The differences between management accounting and financial accounting include:

1. Management accounting provides information to people within an organization while financial accounting is mainly for those outside it, such as shareholders.

2. Financial accounting is required by law while management accounting is not. Specific standards and formats may be required for statutory accounts such as in the I.A.S International Accounting Standard within Europe.

3. Financial accounting covers the entire organization while management accounting may be concerned with particular products or cost centers.

Contrast

Format: Fin. Acc: Financial accounts are supposed to be in accordance with a specific format by IAS so that financial accounts of different organizations can be easily compared.

Man. Acc:  No specific format is designed for management accounting systems.

Planning and control: Fin. Acc: Financial accounting helps in making investment decision, in credit rating.

Man. Acc: Management Accounting helps management to record, plan and control activities to aid decision-making process.

Focus: Fin. Acc: Financial accounting focuses on history.

Man. Acc: Management accounting focuses on future.

Users: Fin. Acc: Financial accounting reports are primarily used by external users, such as shareholders, bank and creditors.

Man. Acc: Management accounting reports are exclusively used by internal user’s viz. managers and employees.

External Vs. Internal: Fin. Acc: A financial accounting system produces information that is used by parties external to the organization, such as shareholders, bank and creditors.  

Man. Acc: A management accounting system produces information that is used within an organization, by managers and employees.