Explain the two categories of accounting while stating the difference between the two

1.Management Accounting
Management Accounting is concerned with the provision of information to people within the organization to help them make better decisions. It is therefore concerned with the provision and the interpretation of information required by management for the following purposes;
1. Formulating the policies of the organization
2. Planning the activities of the organization in the long, medium and short term i.e strategic to operational plans
3. Controlling the activities of the organization
4. Decision making
5. Performance appraisal at the strategic, departmental and operational levels

Management accounting can also be said to be concerned with data collection (both from internal and external sources), processing, interpreting and communicating the resulting information for use within the organization so that management can more effectively plan, make decisions and control operations.

2.Financial Accounting
Deals with the provision of information to external users and can be defined as “the process of measuring, classifying, summarizing and reporting financial information to be used in making economic decisions”.
It is therefore concerned with the preparation of financial statements to be used by external users.

Difference between Management Accounting & Financial Accounting
1. Legal requirement:
Public limited companies have statutory requirement to produce annual financial accounts.
Management Accounts are optional and should be produced if it is cost effective to the organization.
2. Financial accounting reports detail the whole business whereas Management accounting reports focus on small units e.g departments, sections of the organization e.g cost and profitability of a product, department e.t.c.
3. General accepted accounting principles (GAAPs)
Financial Accounting statements are prepared as per legal requirement and generally accepted accounting principles established by regulatory bodies e.g. International Accounting Standards Committee (IASC), Accounting Standards Board (ASB) for uniformity.
Management Accounting focuses on producing reports to serve the management’s needs for effective decision-making, planning and control functions.
4. Time Dimension;
Financial Accounting is concerned with historical reports i.e what has happened in the past (Retrospective Accounting)
Management Accounting is concerned with future as well as past information
(Prospective Accounting)
5. Report Frequency
Financial Accounting reports are published annually for detailed reports and semi- annually for lesser detailed reports.
Preparation of management accounting reports depend on the need by management to make decisions and can be prepared daily, weekly, monthly e.t.c.

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Titany answered the question on October 7, 2021 at 07:45