What is management accounting

Financial accounting and management accounting are two distinct branches of accounting that serve different
purposes within an organization.

**Financial Accounting:**

Financial accounting involves the preparation of financial statements and reports for external stakeholders, such as
investors, creditors, regulators, and the general public. The primary objective of financial accounting is to provide
accurate and reliable information about a company's financial performance and position to external users who are
not directly involved in the day-to-day operations of the business.

Key features of financial accounting include:

1. **External Reporting**: Financial accounting focuses on preparing financial statements like the income
statement, balance sheet, cash flow statement, and statement of changes in equity, which are then distributed to
external parties.

2. **Historical Perspective**: Financial accounting records past financial transactions and summarizes them in
financial statements for a specific period, typically quarterly or annually.

3. **Standardization**: Financial accounting follows generally accepted accounting principles (GAAP) or

international financial reporting standards (IFRS) to ensure consistency and comparability of financial information
across different companies.

4. **Regulatory Compliance**: Financial accounting is subject to regulatory requirements and standards set by
government authorities or regulatory bodies to ensure transparency and accountability in financial reporting.

**Management Accounting:**

Management accounting, on the other hand, is concerned with providing financial information to internal
stakeholders, such as managers, executives, and employees, to support decision-making, planning, control, and
performance evaluation within the organization.

Key features of management accounting include:

1. **Internal Reporting**: Management accounting focuses on generating internal reports, analyses, and forecasts
tailored to the specific needs of managers and decision-makers within the organization.
2. **Future-oriented**: Management accounting emphasizes forward-looking information to assist managers in
planning future activities, setting goals, and making strategic decisions.

3. **Flexibility**: Unlike financial accounting, which must adhere to external reporting standards, management
accounting systems can be customized to meet the unique needs of different departments, projects, or decision
contexts within the organization.

4. **Decision Support**: Management accounting provides information and analysis on various aspects of the
business, such as cost behavior, budgeting, pricing, product profitability, capital investment decisions, and
performance evaluation, to help managers make informed decisions and improve operational efficiency.

In summary, while financial accounting focuses on reporting financial information to external stakeholders for
regulatory compliance and investment decisions, management accounting focuses on providing internal stakeholders
with relevant information and analysis to support managerial decision-making and improve organizational
performance.