Differences Between Financial Accounting and Management Accounting

1242 Words Oct 15th, 2012 5 Pages
Introduction

The purpose of this report is to discuss principles of and similarities and differences between financial and management accounting and to highlight how management accounting could be used to improve TVD’s performance. In particular, one of the management accounting techniques, benchmarking, is used as an example of how MA can help a business to run successfully.

Today, accounting is an important aspect of business. The primary idea is to present financial and non-financial information so that the company can make good decisions and succeed financially. In other words, for a business or organisation to be able to communicate and exist there is a demand of accounting.

There are two main types of accounting: financial
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As a result, management accounting incorporates forward-looking elements such as sales budgets and cash-flow forecasts to facilitate forecasting and the decision-making process. The disadvantage of this is that management accounting must often resort to estimates about future outcomes. In comparison, financial accounting is exclusively based on information about past events, which are verifiable. Consequently, it can be more accurate and precise than management accounting.

Description of management accounting technique: Benchmarking

As described above, management accounting has many advantages as a complement to the financial accounting system. Therefore, it is recommended that TVD adopt more management accounting techniques to improve its chances of success. In this report, benchmarking will be used as an example of how these techniques could help to improve TVD’s performance. Although still unfamiliar to many people, benchmarking is one of the most powerful techniques within management accounting. It is also particularly relevant in the context of TVD’s business concept.

The main idea behind benchmarking is to make comparisons between the own company and other organizations that have a high performance rating. This provides a chance to study the “best practice” and adopt ideas for how to improve performance and increase profit. According to Drury (2008, p.14) it “represents the ideal way of moving forward and achieving high competitive

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