Financial Accounting and Management Accounting

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:23AM in AAT student discussion
Hi,

Can anyone give me a definition for both financial and management accounting? Can't get my head round this one! Thanks.

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Financial Accounting and Management Accounting

    Hi

    As a general rule financial accounting is concerned with recording and catagorizing transactions and assets and liabilities and recognition of their value, movements and changes. The ultimate aim being the preparation of the financial statements. Management accounting is to analyse and interpret the businesses performance and forecast future issues relating to the business and its finances.

    Management accounting is often said to be forward looking and finacial accounting being more historical/looking at past events, but a lot of management accounting may involve analysing past events. In reality, one feeds into another, i.e. financial accounting infomation may be required to carry out a management accounting analysis or management accounting information may be required to prepare a financial statement (costings for stock or WIP, for example). Also, financial management is something that involves management and financial accounting issues.

    Audit and taxation are sometimes considered financial accounting, but they are really seperate in their own right.

    Neil
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Financial Accounting and Management Accounting

    Thanks for your help on this, I think it's slowly sinking in!!

    Cathy
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Financial Accounting and Management Accounting

    Interestingly Neil (or perhaps not!), im writing an essay at the moment directed at the fact that because management accounting systems are directed at inventory valuation, wip etc they tend to become useless for management accounting (due to arbitrary allocation of overheads etc)

    This appears to be the way things are heading, which seems to be why ABC is becoming more publicised. Also the fact manufacturing is now in the minority, the factors that previously linked financial accounting and management accouting are far less relevant. (e.g. no physical stock)

    Obviously not saying you didnt know that or it was worthwhile mentioning in providing an explanation between management and financial accounting!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Financial Accounting and Management Accounting

    All good points but one that has been missed is that with Financial Accounting, you are providing external agencies with information (HMCE, Companies House, etc, etc) and your reports have a formalised layout - like the Income Statement and Balance Sheet.

    With Management Accounting, you are mainly providing information internally - to heads of departments, to different sales people - and you provide the information in the format/form they require.

Categories

Privacy Policy