Management accounting is the process of providing financial facts, statistics, and resources to the managers involved in decision making. It is also known as managerial accounting. This form of accounting is only used by the managerial team of the institution. This is the only difference between management accounting and financial accounting.
Objective and Advantage of Management Accounting
The main objective of this form of accounting is to manage the business organization. The managerial team of an organization withdraws financial information and makes judicious use of them to conduct business operations and activities more proficiently. Some of the advantages of management accounting are like controlling business operations, planning, decision making, and strategic administration considering financial data, recognizing business problem areas, and organizing.
While making any decision, the charts, forecasts, tables, and various other similar kinds of analysis acts as a catalyst in making the process easier and justified. The concept is, however, not mandatory and hence it can formulate its structure as per the requirement of the company. This means that if a company requires in-depth investigation or analysis, it can easily do so. This helps the management organization to focus on important areas that require development. Similarly, in launching or eliminating any existing product of the company, management accounting can play a crucial role in formulating strategies.
Limitations of Management Accounting
Besides being helpful to the organization in making better decisions there are certain limitations to management accounting as well. For instance, the decisions that are made by the management team are only based on the information that is provided by Financial Accounting. Moreover, the majority of the management team does not have the required amount of skills, expertise, or knowledge in regards to economics, statistics, and finance.
One of the common problems faced by the management team is that they receive historical outdated data. This means that the data might not be relevant to the present situation of the organization when they are planning to make any decision. Lastly, it requires a considerable amount of investment to set up a management accounting team.
Unavoidable is the fact that Management Accounting helps in the framework of financial accounting at the end of the year. The verified and recorded data are highly helpful for the management accounting team. Some of the key differences between management accounting and financial accounting are that management accounting is not regulated by any form of law whereas in financial accounting there are standard rules that are required to be followed. The main objective of management accounting is to help the internal management system, unlike financial accounting that helps the investors or creditors take decisions in regards to their investment.
Difference Between Management Accounting and Financial Accounting
The finance administration shares financial data and reports. These reports consist of invoices, financial balance statements, and things as such. This form of information that is achieved from management accounting helps the management to make better decisions. Thus, management accounting aims to use statistics and data to formulate better approaches and control the activity of an enterprise or institution in its business and development activities.
On the other hand, financial accounting aims to benefit the stakeholders of an organization. They provide recording and presentation and another form of information that is valuable to them. However, management accounting stresses on presentation of the financial information for the development of the internal organization. It is, therefore, can be defined as the application of knowledge and professional skills that would be beneficial in the preparation of financial and accounting information.
It is prepared in a manner that helps the organization in making better decisions and develops better strategies. It also helps them in the formulation of new policies and regulates the operations of the business organization. It is important to keep in mind that there is no fixed structure or format that is incorporated in management accounting. For instance, some of the tools and techniques that are used by management accounting are costing, financial accounting, economics, and business analysis, and so on. All of these must serve the objective of helping the business organization imply better strategies in the development.
Management accounting is not subjected to investigation or audits and financial accounting has its records audited as per the law. Besides, management accounting concerns both financial and non-financial information, unlike financial accounting that only provides financial information. Therefore, a business enterprise requires both management accounting and financial accounting to operate successfully and most importantly with the help of management accounting it can take better strategies instigating the growth of the company.