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Delhi University Mcom Managerial Accounting Financial vs Management Accounting

Delhi University Mcom Managerial Accounting Financial vs Management Accounting

Delhi University Mcom Managerial Accounting Financial vs Management Accounting:- we will provide complete details of Delhi University Mcom Managerial Accounting Financial vs Management Accounting in this article.

Delhi University Mcom Managerial Accounting Financial vs Management Accounting

The differences between management accounting and financial accounting include:

  1. Management accounting provides information to people within an organization while financial accounting is mainly for those outside it, such as shareholders
  2. Financial accounting is required by law while management accounting is not. Specific standards and formats may be required for statutory accounts such as in the I.A.S International Accounting Standard within Europe.
  3. Financial accounting covers the entire organization while management accounting may be concerned with particular products or cost centres.

Managerial accounting is used primarily by those within a company or organization. Reports can be generated for any period of time such as daily, weekly or monthly. Reports are considered to be “future looking” and have forecasting value to those within the company.

Financial accounting is used primarily by those outside of a company or organization. Financial reports are usually created for a set period of time, such as a financial year or period. Financial reports are historically factual and have predictive value to those who wish to make financial decisions or investments in a company. Management Accounting is the branch of Accounting that deals primarily with confidential financial reports for the exclusive use of top management within an organization. These reports are prepared utilizing scientific and statistical methods to arrive at certain monetary values which are then used for decision making. Such reports may include:

  • Sales Forecasting reports
  • Budget analysis and comparative analysis
  • Feasibility studies
  • Merger and consolidation reports

Financial Accounting, on the other hand, concentrates on the production of financial reports, including the basic reporting requirements of profitability, liquidity, solvency and stability. Reports of this nature can be accessed by internal and external users such as the shareholders, the banks and the creditors.

Delhi University Mcom Managerial Accounting Financial vs Management Accounting:-Regulation and standardization

While financial accountants follow Generally Accepted Accounting Principles set by professional bodies in each country or International Financial Reporting Standards, managerial accountants make use of procedures and processes that are not regulated by standard-setting bodies.

Multinational companies prefer to employ managerial accountants who have a widely recognised certification such as CGMA, Chartered Global Management Accountant certified by the AICPA and CIMA, ACMA certified by the Institute of Cost Accountants of India , Chartered Management Accountant certified by the Chartered Institute of Management Accountants, or CMA, Certified Management Accountant certified by the Institute of Management Accountants.

Delhi University Mcom Managerial Accounting Financial vs Management Accounting:-Time Period

Managerial Accounting provides top management with reports that are future-oriented, while Financial Accounting provides reports based on historical information. There is no time span for producing managerial accounting statements but financial accounting statements are generally required to be produced for the period of 12 previous months.

Delhi University Mcom Managerial Accounting Financial vs Management Accounting:-Legal differences in the United States

  • There is no legal requirement for an organization to use management accounting, but publicly traded firms (limited companies or whose shares are bought and sold on an open market) must, by law, prepare financial account statements.
  • In management accounting systems there is no requirement for an independent external review but financial accounting annual statements must be audited by an independent CPA firm.
  • In management accounting systems, management may be concerned about how reports will affect employees behavior whereas financial management concerns are about the adequacy of disclosure in financial statements.

Delhi University Mcom Managerial Accounting Financial vs Management Accounting:-The difference between financial and managerial accounting

A common question is to explain the differences between financial accounting and managerial accounting, since each one involves a distinctly different career path. In general, financial accounting refers to the aggregation of accounting information into financial statements, while managerial accounting refers to the internal processes used to account for business transactions. There are a number of differences between financial and managerial accounting, which fall into the following categories:

  • Aggregation. Financial accounting reports on the results of an entire business. Managerial accounting almost always reports at a more detailed level, such as profits by product, product line, customer, and geographic region.
  • Efficiency. Financial accounting reports on the profitability (and therefore the efficiency) of a business, whereas managerial accounting reports on specifically what is causing problems and how to fix them.
  • Proven information. Financial accounting requires that records be kept with considerable precision, which is needed to prove that the financial statements are correct. Managerial accounting frequently deals with estimates, rather than proven and verifiable facts.
  • Reporting focus. Financial accounting is oriented toward the creation of financial statements, which are distributed both within and outside of a company. Managerial accounting is more concerned with operational reports, which are only distributed within a company.
  • Standards. Financial accounting must comply with various accounting standards, whereas managerial accounting does not have to comply with any standards when it compiles information for internal consumption.
  • Systems. Financial accounting pays no attention to the overall system that a company has for generating a profit, only its outcome. Conversely, managerial accounting is interested in the location of bottleneck operations, and the various ways to enhance profits by resolving bottleneck issues.
  • Time period. Financial accounting is concerned with the financial results that a business has already achieved, so it has a historical orientation. Managerial accounting may address budgets and forecasts, and so can have a future orientation.
  • Timing. Financial accounting requires that financial statements be issued following the end of an accounting period. Managerial accounting may issue reports much more frequently, since the information it provides is of most relevance if managers can see it right away.
  • Valuation. Financial accounting addresses the proper valuation of assets and liabilities, and so is involved with impairments, revaluations, and so forth. Managerial accounting is not concerned with the value of these items, only their productivity.

There is also a difference in the accounting certifications typically found in each of these areas. People with the Certified Public Accountant designation have been trained in financial accounting, while those with the Certified Management Accountant designation have been trained in managerial accounting.

Pay levels tend to be higher in the area of financial accounting and somewhat lower for managerial accounting, perhaps because there is a perception that more training is required to be fully conversant in financial accounting.

Delhi University Mcom Managerial Accounting Financial vs Management Accounting

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