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Financial Accounting and Management Accounting






     Accounting is the process of recording, classifying and analyzing business events and transactions in a stipulated financial period (Gapenski, 2007). Early before 14th century, accounting or recording was basically used by business people to assist them to remember the transactions they had made. Due to increased number of transactions, double-entry book keeping was introduced in the business as the means of recording transactions. This double-entry booking method was first put to test in the northern parts of Italy.

Due the changes in the business environment at the time, more investors were involved. This encouraged many investors to form joint ventures, which later came to change the whole accounting concepts and interests. This ventures ware managed by different people other than the investors. Each group of stake holder needed a different form of accounting report hence financial and management accounting classification was brought to book. Today, accounting is the business language as every stakeholder has his or her own version of understanding of the business accounting reports according to the information he or she requires (Gapenski, 2007).

There is a very big difference between financial accounting and management accounting. Each of the accounting concepts has its own principle reasons for it to be prepared. Financial accounting is mainly used by the external bodies such as investors, government, general public and other interested parties in the industry. Investors want to now the financial position of the company and the prospects of that company to increase or to decrease its profits margin.

The government at the other hand is interested in the tax and the continuity of that the company in question. Management accounting information on the other hand is used by the company management, employees and other internal bodies. It helps the management to make up-to-date decisions while in their duties as managers. A good management accounting report, help the employees to evaluate whether the company they are working for is stable and their job is secure (Olds, 2006

Financial accounting provides historical information to the public while management accounting shows the financial position of the company. It also proves the customers satisfaction hence helping the management to plan for the future or to improve on the current situation to encourage repetitive business. It is regulated by external bodies such as a public company accounting oversight board among others. These bodies maintain good accounting standards to be undertaken by all public companies. By so doing, relevant and reliable accounting information is steadily given to the public by public companies. These reduce chances of the companies misleading the public about their financial position. Management accounting on the other hand is not regulated at all. This is because its information is required only by the internal users hence no need to be regulated whatsoever.

Financial accounting is required by law to at least prepare an accounting report at the end of every financial year while on the other hand; management accounting reports are frequently prepared as they are used by the management while making decisions of the day to day subjects. The Internal users of the management accounting information, needs to be updated with the relevant accounting information for good profound decisions (Schmidgall, 2002).

Both financial and management accounting information are important and relevant in any form of business. For prudent management of the business, both accounting forms are necessary for the business to realize its chief objective and goals.

Copyright (c) 2012 Morgan D






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Posted on 2012-12-20, By: *

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