Q:1

Accounting is a process of systematically identifying, recording, classifying,

reporting, analysing and interpreting the results thereof to the users of the
financial statement. The two principal branches of Accounting are Financial
Accounting and Management Accounting. The former is an accounting
system which gives true and a fair view of the financial position of the
company to various parties. The latter is an accounting system which provides
both the quantitative and qualitative information to the managers. Here we
are going to discuss the differences between Financial Accounting and
Managerial Accounting.

Content: Financial Accounting Vs Management

Accounting
1.

Comparison Chart

2.

Definition

3.

Key Differences

4.

Similarities

5.

Conclusion

Comparison Chart

BASIS FOR
COMPARISON

FINANCIAL ACCOUNTING

MANAGEMENT ACCOUNTING

Meaning

Financial Accounting is an accounting system that

focuses on the preparation
of financial statement of an organization to provide
the financial information to the interested parties.

The accounting system which provides relevant

information to the managers to make policies,
plans and
strategies for running the business effectively is
known as
Management Accounting.

Is is compulsory?

Yes

No

Information

Monetary information only.

Monetary and non-monetary information

Objective

To provide financial information to outsiders.

To assist the management in planning and

decision making process by providing detailed
information on various matters.

Format

Specified

Not specified

Time Frame

Financial Statements are prepared at the end of the

accounting period which is usually one year.

The reports are prepared as per the need and

requirements of the organization.

BASIS FOR
COMPARISON

FINANCIAL ACCOUNTING

MANAGEMENT ACCOUNTING

User

Internal and external parties

Only internal management.

Reports

Summarized Reports about the financial position of

the organization

Complete and Detailed reports regarding various

information.

Publishing and
auditing

Required to be published and audited by statutory

auditors

Neither published nor audited by statutory

auditors.

Definition of Financial Accounting

Financial Accounting is an accounting system which is concerned with the
preparation of financial statement for the outside parties like creditors,
shareholders, investors, suppliers, lenders, customers, etc. It is the purest
form of accounting in which proper record keeping and reporting of financial
data are done, to provide relevant and material information to its users.
Financial Accounting is based on various assumptions, principles and
convention like going concern, materiality, matching, realisation,
conservatism, consistency, accrual, historical cost, etc. The financial statement
consists of a Balance Sheet, Income Statement and Cash flow statement which
are prepared as per the guidelines provided by the relevant statute.
Normally, the statements based on the financial accounting are prepared for
one accounting year, to enable the user to make comparisons regarding the
financial position, profitability and performance of the company in a specific
period. Not only external parties but internal management also gets
information for forecasting, planning, and decision making.

Definition of Management Accounting

Management Accounting, also known as Managerial Accounting is the
accounting for managers which helps the management of the organisation to
formulate policies and forecasting, planning and controlling the day to day
business operations of the organisation. Both the quantitative and qualitative
information are captured and analysed by the management accounting.
The functional area of management accounting is not limited to providing a
financial or cost information only. Instead, it extracts the relevant and
material information from financial and cost accounting to assist the
management in budgeting, setting goals, decision making, etc. The accounting
can be done as per the requirement of the management, i.e. weekly, monthly,
quarterly, etc. and there is no format set on the basis of which it is to be
reported.

Key Differences Between Financial Accounting and

Management Accounting
The following points explain the major differences between financial
accounting and managerial accounting:
1.

Financial Accounting is the branch of accounting which keeps track of

all the financial information of the entity. Management Accounting is that
branch of accounting which records and reports both the financial and
nonfinancial information of an entity.

2.

Users of financial accounting are both the internal management of the

company and the external parties while the users of the management
accounting are only the internal management.

3.

Financial accounting is to be publicly reported whereas the

Management Accounting is for the use of the organisation and hence it is very
confidential.

4.

Only monetary information is contained in financial accounting. As

against this, management accounting contains both monetary and nonmonetary information such as the number of workers, the quantity of raw
material used and sold, etc.

5.

Financial Accounting is done in the prescribed format, whereas there is

no prescribed format for the Management Accounting.

6.

Financial Accounting focuses on providing information about the

functioning of the entitys business to its users, whereas Management
Accounting focuses on providing information to help them in evaluating the
performance and devising plans for the future.

7.

The Financial Accounting is mainly done for a specific period, which is

usually one year. On the other hand, the management accounting is done as
per the needs of the management say quarterly, half yearly, etc.

8.

Financial accounting is a must for any company for auditing purposes.

On the contrary, management accounting is voluntary, as no editing is done.

9.

Financial accounting information is required to be published and

audited by statutory auditors. Unlike, management accounting, which does
not require information to be published and audited, as they are for internal
use only.

Similarities

Used by the Internal Management.

Evaluation of Performance.

Branch of Accounting.

Presents the position of the entity.

Conclusion
Financial Accounting and Management Accounting are of great significance, in
fact, they help the organisation in various ways. As financial accounting is
helpful in the proper record keeping of innumerous transactions and
comparison of the performance of two periods of an entity or between the two
entities, while the management accounting is helpful in analysing the
performance, making a strategy, taking an effective judgement and
preparation of policies for the future.
Q:2

Financial Statements
Definition: Financial statements are a collection of reports about an organization's financial
results, financial condition, and cash flows. They are useful for the following reasons:
To determine the ability of a business to generate cash, and the sources and uses of that

cash.

To determine whether a business has the capability to pay back its debts.

To track financial results on a trend line to spot any looming profitability issues.

To derive financial ratios from the statements that can indicate the condition of the
business.

To investigate the details of certain business transactions, as outlined in the disclosures

that accompany the statements.
The standard contents of a set of financial statements are:

Balance sheet. Shows the entity's assets, liabilities, and stockholders' equity as of the
report date. It does not show information that covers a span of time.

Income statement. Shows the results of the entity's operations and financial activities for
the reporting period. It includes revenues, expenses, gains, and losses.
Statement of cash flows. Shows changes in the entity's cash flows during the reporting

period.

Supplementary notes. Includes explanations of various activities, additional detail on some

accounts, and other items as mandated by the applicable accounting framework, such
as GAAP or IFRS.
If a business plans to issue financial statements to outside users (such as investors or lenders),
the financial statements should be formatted in accordance with one of the major accounting
frameworks. These frameworks allow for some leeway in how financial statements can be
structured, so statements issued by different firms even in the same industry are likely to have
somewhat different appearances.
If financial statements are issued strictly for internal use, there are no guidelines, other than
common usage, for how the statements are to be presented.
At the most minimal level, a business is expected to issue an income statement and balance sheet
to document its monthly results and ending financial condition. The full set of financial statements
is expected when a business is reporting the results for a full fiscal year, or when a publicly-held
business is reporting the results of its fiscal quarters.