Differences between Management and Financial Accounting

Financial and management accounting look at a business using different viewpoints. Management accounting, also known as cost accounting, concentrates in the internal needs of an organization, while financial accounting specializes in outside customers of details. Financial statements collection is associated with financial accounting. Budgets and cost variances connect with management accounting.

Focus of Attention

Management accountants are concerned with preparing and managing functions, concentrating on details, such as material costs. The more complicated an function is, the more likely it is to have more accountant devoted to management needs, such as cost management, and ideal preparing.

Financial reports signify a business as a whole, while managerial accounting is often more goal-oriented and more particular to a place of a business. For example, a manager may ask accounting to give him a report displaying sales numbers for the past two years. He is interested in only an aspect of the big picture.

Past compared to Future

Financial accounting is concerned with past, while management accounting deals with the future. Financial accountant want to make sure that traditional information is collected effectively. They don't care if expenses are above budget or about cost variances because they usually don't offer budgets details to strangers. Instead, they concentrate on obtaining information effectively, following GAAP- Usually Approved Accounting Principles.

Different Needs

Another place where financial and management accounting vary is that financial accountant need to be nimble enough to offer internal reports on as-needed-basis as well as regular statements. It's common for accountant to run issues or installation reports without much lead-time. The point is to get the details to management fast. This is not the situation with financial accounting, where accountants want to be accurate and cautious because reports go to customers outside the business, such as traders or lenders. Financial reporting usually needs some time to it is an organized event.

Accounting Systems

Generally in computerized accounting, the cost accounting system connections with the financial accounting system, providing into particular accounts, such as inventories and cost of goods sold. The organization uses the cost system in its actions to control its procedures and be able to determine costs to each aspect produced. Financial accounting doesn't need to know costs of manufactured aspect A compared to aspect B -- these are particular issues of management accounting only. Often, once a week or a month the operator operates a program where details is moved to certain accounts in the general ledger.

Usually if something looks odd or wrong in the financial system, the management program is used as back up and for research. For example, if the transportation-in account looks too large, then the financial advisor could use the management component or program to get details on stock and other buys that could cause the surprising difference.

Many times the same individual does management and financial accounting without recognizing it. This is often the situation with small businesses. In many circumstances limitations between the two kinds of accounting are blurry and are not a problem. However, when working with larger businesses, it is helpful keep projects and procedures between the two kinds of accounting divided, but linked.