Management Accounting
Introduction:
CIMA (Chartered Institute of Management Accountants) defines Management accounting as “Management Accounting is the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of information that used by management to plan, evaluate, and control within an entity and to assure appropriate use of an accountability for its resources”.
Financial accounting reports are used for external parties like creditors, while managerial accounting reports are for internal use inside the organization like managers. This contrast result in many differences between financial accounting and managerial accounting even both of them are depending on the same financial data.
There are many other differences between them rather than the preparation of reports like their past and future, data provided and other differences that will be discussed.
Future and past consideration:
Organization planning in very essential, so the managerial accounting participate in future planning, while financial accounting just give the data regarding past transactions within specific period of time. But the economy is always changing, so managers always put their plans under their estimation not
depending on what already happened in the past.
Data:
Managers always seek for relevant information which is appropriate for specific requirement, for example if an organization planning to enter new market, it will be difficult to estimate the sales volume, but managers need this estimation data to help them in decision making. Financial accounting data are almost relevant and objective and the managerial accounting has to be much more flexible to provide the data required for managers to help them taking the right decision.
Segment reporting:
Financial accounting reports mainly consider the entire organization, while Managerial accounting reports mainly consider special business units.
Formal and informal records:
Financial accounting reports are done with specific format, so it will be easy to find the finical accounting reports for different organizations much easier, so it is considered as formal records. While managerial accounting has many types of formats, so it could be considered as formal or informal.
Legal and rules:
Financial accounting regulations and rules are presented by GAAP - General Accepted Accounting Procedure, while managerial accounting rules and regulations are presented by management suitability.
The Power of Accounting:
“Accounting is an information system that identifies, measures, records and communicates relevant, reliable, consistent and comparable information about an organization’s economic activities. Its objective is to help people make better decisions. It also helps people better assess opportunities, products, investments, and social and community responsibilities. In addition to reporting on the performance of a business, what the business owns, and what it owes, accounting opens our eyes to new and exciting possibilities.” (Accounting: The Key to Success, 2014)
It is important for managers to have courses in accounting to be able to make the right decisions as the accountant profession is very good inn analysis and applying costs, balance sheets and this will reflect on the organization quality and keep it in progress.
Conclusion:
Financial accounting and managerial accounting, both are important for the organization as financial accounting reports describe the past transactions and help managers to know the financial status of the organization and it is formal reports, so it will be easy to collect them for any organization, while the managerial accounting help managers in future planning and estimation to take the right
decision.
References:
Accounting: The Key to Success. (2014). In: Accounting: The Key to Success, 1st ed
Ahmed, S. (2014). Financial Accounting Vs Managerial Accounting or Difference between Financial and Managerial Accounting | Management Accounting. [online] Accounting4management.com. Available at: http://www.accounting4management.com/financial_accounting_vs_managerial_accounting.htm [Accessed 17 May. 2014].
Diffen.com, (n.d.). Financial Accounting vs Management Accounting - Difference and Comparison | Diffen. [online] Available at: http://www.diffen.com/difference/Financial_Accounting_vs_Management_Accounting [Accessed 17 May. 2014].
Whitmore, B. and Albers, J. (2006). Knowledge management in an accounting organization. Journal of Knowledge Management Practice, 7(4).
Stanleigh, M. (2010). Accounting for Quality. [online] Bia.ca. Available at: http://www.bia.ca/articles/qm-accounting%20for-quality.htm [Accessed 17 May. 2014].