In order to satisfy the need of different in accounting information, different
branch of accounting have been developed. They can be classified into two categories.
Accounting
Finance Accounting Management Accounting
Financial Accounting It is the original from of accounting. It is mainly confined
to the preparation of financial statement for the use of outsiders like shareholders, debenture holders, creditors, banks and financial institution. The financial statement, i.e. the profit and loss account and the Balance sheet, show then the manner in which operation of the business have conducted during a specified period.
Management Account it is accounting for the management which provides
necessary information to the management for discharging its functions. According to the chartered institute of Management accountants, London, “management accounting is the application of professional information in such a way as to assist the management in the formation of policies and in the planning and control of the operation of the undertaking.”
It cover all arrangement and combination of adjustment of the orthodox
information to provide the chief executive with the information from which he can control the business, i.e. information about fund, cost, profit, etc
Management accounting cover various areas such as cost accounting,
DIFFERNCE BETWEEN MANAGEMENT ACCOUNT AND FINACIAL ACCOUNT-
Financial accounting and management accounting are closely inter-related
since management accounting is to a large extent concerned with the rearrangement of the data provided by financial accounting. Moreover, all accounting are financial in the sense that all accounting system are in monetary terms and the management is responsible for the contents of the financial accounting statement. In spite of such a close relationship between the two, there are certain fundamental difference can be laid down as follows: Objectives- financial accounting is designed to supply information in the form of profit and loss account and balance sheet to external parties like shareholder, creditor bank, investor, and Government. Information is supplied periodically and is usually of a nature in which management is not very interested. Management account is designed principally for internal use by the management.
Analysing performance financial accounting portrays the position of
business a whole. The financial statement like income statement and balance sheet report on overall performance or status of the business. On the other hand management accounting direct its attention to various division or department of the business and reports about the profitability, performance etc. Of each of them. Finance accounting deals with the aggregates and there for cannot reveal what part of the management action is going wrong and why. Management accounting provided analytical data to arrive at this.
Data used – financial accounting is concerned with the monetary record of
past events. It is post-mortem analysis of past activity and there for out-of- date for management action. Management accounting is accounting for future, and there for supplied data both for the present and for the future, duly analysed and in detail, in the “managing the value of management language.” This become the for management action.
Monetary measurement – in financial accounting, only such economic event,
which can be described in term of money, find a place. However the management is equally interested in non-monetary economic events,. Technical innovations, personnel in the organisation changes in the value of money, etc. These events affect management decision and there for management accounting cannot afford to ignore then. For example ,change of the value of money may not find a place in financial accounting on account of going concerned management will have to take this factor into account
Periodicity of reporting- The period of reporting is much longer in finance
accounting as compare to management accounting. The statement and the balance sheet usually or in some cases half-year. Management require. In information at frequency interval and there for , finance accounting fails to cater to the need of the management . in management accounting there is more emphasis on furnishing information quickly and at comparatively short interval as per the requirement of the management.
Precision- There is less emphasis on precision in case of management
accounting is more subject. This is because since the information is meant for internal use.
Nature- financial accounting is more objective while management accounting
is more subjective. This is because management accounting is fundamentally based on judgement rather than on measurement
Legal compulsion- financial accounting has more or less become compulsory of
every business on account of the legal provisional of one or the other act. However a business is free to install or not to install a system of management accounting.
The above of point of different between financial accounting and
management accounting prove that management accounting has a flexible approach as compared to the rigid approach in the past while management accounting shows how the business has perform in the future.
Objective of accounting-
The following are the main objectives of accounting :
To systematic record- accounting is done to keep the record of financial
transaction. In the absence of accounting there would have been a terrific on burden on human memory in most cases would have been impossible to bear
To protect business properties- accounting provided protection to business
properties from unjustified and unwarranted use. This is possible because, supplies the information to the management or proprietor.
1 the amount of the proprietor’s funds invested in the business
2 how much business has to pay to other 3 how much the business has to recover from other 4 How much the business has in the form of (a) fixed assets, (b) cash in hand (c) cash at bank (d) stock of raw materials, work – in progress and finished good. To ascertain the financial position of business- The profit and loss account given the amount of profit or loss made by the business during a particular period. However, it is not enough. The businessman must know about his financial position, i.e. what he owes and what he owes. This objective is served by the balance a particular data. It serves as a barometer for ascertaining the financial health of the business.
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