Absolute assurance in auditing - meaning

5 differences between financial accounting and management accounting

Financial accounting is the process of summarising financial information in order to prepare entity financial statements. Financial accounting is thus the manner in which an entity communicates financial information namely its position, cash flow, and performance to the outside world.

Management accounting on the other hand is the process of providing detailed information to the management on current and planned events. This information assists managers in their role of planning, controlling, and making decisions. Usually, management accounts are available to internal users of accounting information.

Management information contains information such as department budgets, product profitability, and information on production costs.

The following are differences between management accounting and financial accounting:

  • Financial accounting contain information which covers events and transaction which have already occurred (historical) while management accounting provide information which will support management decision now and in the future;
  • Financial accounting reports on all activities of the organization while management accounting reports on activities which will enable management to make decision and this may be the section of the entity or the whole entity;
  • In many countries entities are required by law to prepare financial accounting information but preparation of management accounting information is always under discretion of management.
  • Financial accounting information are prepared to be used by external users such as shareholders and government while management accounting information are prepared to support managers decision internally.
  • Financial accounting information are prepared in accordance with generally accepted accounting principles such as IFRS while there is no internally acceptable and enforceable standards on preparation of management accounting information.

2 thoughts on “5 differences between financial accounting and management accounting”

  1. Well explained article! I am sure that this website will incredibly helpful for people who aspire to learn accounting and finance as their career. Keep sharing!!

  2. This a great article for future accounts or someone that wishes to understand more about the finance industry. Loved it!

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