6 differences between management accounting and financial accounting

Due to many differences in objects and purposes of using information, management accounting and financial accounting also have fundamental differences.

Learn about concepts

Management accounting  is a system that collects, processes and communicates information to internal business managers. From there, it helps administrators make the right business decisions in the future, and at the same time lays the foundation for systematic business management, aiming for sustainable business development.

Financial accounting  is the recording, reflecting, synthesizing data, and preparing financial statements to serve the needs of providing information to subjects outside businesses and organizations such as: shareholders, authorities (taxation). , inspectors...), creditors, banks... The purpose is to serve macro management needs.

From the basic differences in objects and purposes of using information, management accounting and financial accounting have the following basic differences:

1. Information users

Information users of management accounting are members inside the business: Board of directors, owners, managers, supervisors, etc., while financial accounting is mainly outside. businesses such as: shareholders, customers, lenders, suppliers and governments (tax authorities, financial management agencies...).

2. Information characteristics

Financial accounting must comply with information principles according to current accounting standards and regimes in each country, as well as with international accounting principles and standards recognized by other countries.

On the contrary, due to the need to be sensitive and quickly grasp diverse business opportunities, management accounting information needs to be flexible, fast and depending on each specific decision of the manager. Management accounting information is not required to comply with general accounting principles and standards; State regulations on management accounting (if any) are for guidance only. 

3. Legality of accounting

Financial accounting has a legal nature, simply understood as a system of books, records, presentations and information provision that must comply with uniform regulations if it wants to be recognized.

In contrast, the organization of management accounting work is internal, under the authority of each enterprise, to suit the specific management characteristics, management requirements, conditions and management capabilities of the enterprise. each unit.

4. Form of information

Financial accounting information is mainly expressed in value form. As for management accounting, it is expressed in both forms: artifacts and values.

Financial accounting information is information that reflects economic transactions that have arisen and occurred. Meanwhile, because most of the administrator's task is to choose options and plans for an event or process that has not yet occurred, management accounting information mainly focuses on the future.

Financial accounting information is mainly pure accounting information, collected from accounting documents. Information in management accounting is collected to serve the decision-making function of managers and is often not available. Therefore, in addition to relying on the original accounting recording system, management accountants must also apply many different methods such as statistics, economics, professional accounting, and management to synthesize, Analyze and process information into a usable form suitable for the original purpose.

5. Usage reporting method

Reports used in financial accounting are general accounting reports for the entire enterprise (called Financial Reports). There, a general reflection of the capital, assets, and operating results of the enterprise in a period (including Balance Sheet; Cash flow report; Business performance report; Notes) financial statements).

Management accounting reports go deeper into each department and each stage of the business's work (such as production cost and price reports, accounts payable reports, import-export reports, and inventory of inventory). warehouse…).

6. Reporting period

Management accountants carry out regular and shorter reporting periods than financial accountants, depending on corporate governance requirements. Financial accounting reports are prepared periodically, usually annually. 

With the 6 distinguishing criteria mentioned above, it is certain that related subjects will easily compare and distinguish the differences between management accounting and financial accounting. From there, it helps businesses operate their business operations effectively, avoiding unnecessary confusion. 

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