Management Accounting

Financial Accounting
 Importance of management and financial
accounting

 Management Accounting, also known as Managerial Accounting

is the accounting for managers which helps the management of
the organization to formulate policies and forecasting, planning
and controlling the day to day business operations of the
organization. Both the quantitative and qualitative information
are captured and analyzed by the management accounting.
 Financial Accounting is an accounting system which is
concerned with the preparation of financial statement for the
outside parties like creditors, shareholders, investors, suppliers,
lenders, customers, etc. It is the purest form of accounting in
which proper record keeping and reporting of financial data are
done, to provide relevant and material information to its users.
Comparison chart
 Similarities

 Used by the Internal Management.

 Evaluation of Performance.
 Branch of Accounting.
 Presents the position of the entity.
 Difference
 Financial Accounting is the branch of accounting which keeps
track of all the financial information of the entity. Management
Accounting is that branch of accounting which records and reports
both the financial and nonfinancial information of an entity.
 Users of financial accounting are both the internal management of
the company and the external parties while the users of the
management accounting are only the internal management.
 Financial accounting is to be publicly reported whereas the
Management Accounting is for the use of the organization and
hence it is very confidential.
 Only monetary information is contained in financial accounting.
As against this, management accounting contains both monetary
and non-monetary information such as the number of workers, the
quantity of raw material used and sold, etc.
 Differences continues

 Financial Accounting is done in the prescribed format, whereas there is no

prescribed format for the Management Accounting.
 Financial Accounting focuses on providing information about the
functioning of the entity’s business to its users, whereas Management
Accounting focuses on providing information to help them in evaluating the
performance and devising plans for the future.
 The Financial Accounting is mainly done for a specific period, which is
usually one year. On the other hand, the management accounting is done as
per the needs of the management say quarterly, half yearly, etc.
 Financial accounting is a must for any company for auditing purposes. On
the contrary, management accounting is voluntary, as no editing is done.
 Financial accounting information is required to be published and audited by
statutory auditors. Unlike, management accounting, which does not require
information to be published and audited, as they are for internal use only.
 Categories

 Activity based costing (ABC)

 Resource Consumption Accounting (RCA)

 Throughput Accounting
 Importance of presenting financial information

If the financial information is not reliable then users will

take wrong decisions regarding their working with a
company. In this case example if the company have not
good financial position related to supply it will result to
miss understanding of statement that can led to the
company to face problems related to supply.
 Types Managerial
Accounting Report
 Budget report

 Budget reports help small business owners analyze their

company's performance and, if the business is big enough,
managers analyze their department's performance and control
costs. The estimated budget for the period is usually based on
the actual expenses from prior years. If the small business as a
whole or a specific department was substantially over budget
in a previous year and cannot find feasible ways to trim costs,
the budget for future years may need to be increased to a more
accurate level. Owners and managers can also use budget
reports to provide incentives to employees. In this case, some
of the funds budgeted may be given out up as bonuses to
employees for meeting specific financial goals.
 Accounts receivable aging report

 The accounts receivable aging report is a critical tool for

managing cash flow for companies that extend credit to
their customers. This report breaks down the customer
balances by how long they have been owed. Most aging
reports include separate columns for invoices that are 30
days late, 60 days late and 90 days late or more. A
manager can use the aging report to find problems with
the company's collections process. If a significant number
of customers are unable to pay their balances, the
company may need to tighten its credit policies.
Periodically analyzing the accounts receivable aging also
keeps the collections department from overlooking old
debts.
 Job cost reports

 Job cost reports show expenses for a specific project.

They are usually matched with an estimate of revenue
so the company can evaluate the job's profitability. This
helps identify higher-earning areas of the business so
the company can focus its efforts there instead of
wasting time and money on jobs with low profit
margins. Job cost reports are also used to analyze
expenses while the project is in progress so managers
can correct areas of waste before the costs escalate.
 Inventory and manufacturing report

 Companies with physical inventory can use managerial

accounting reports to make their manufacturing
processes more efficient. These reports generally
include items such as inventory waste, hourly labor
costs or per-unit overhead costs. The manager can then
compare different assembly lines within the company
to see where one can improve or to offer bonuses to the
best-performing departments.
 Conclusion

 Financial Accounting and Management Accounting

are of great significance, in fact, they help the
organization in various ways. As financial
accounting is helpful in the proper record keeping of
innumerous transactions and comparison of the
performance of two periods of an entity or between
the two entities, while the management accounting
is helpful in analyzing the performance, making a
strategy, taking an effective judgment and
preparation of policies for the future.