Financial Accounting Vs Managerial Accounting

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Accounting is divided into two subdivisions; financial and management. Financial accounting is a specialised branch of accounting that keeps track of a company 's financial transactions. Using standardised guidelines, the transactions are recorded, summarised, and presented in a financial report or financial statement such as an income statement or a balance sheet, along with two further statements: statement of changes in equity and cash flow statement.

Management accounting (also known as managerial or cost accounting) involves preparing and providing timely financial and statistical information to business managers.
Whilst the sole purpose of financial accounting is to provide information to third parties, managerial accounting differs
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Financial ratios present a myopic review of the organisation and its performance; in as much as the financial ratio report shows positive data, it fails to reflect whether or not internal business operations are struggling and neglects employees. Cash-Flow statements do not resonate the true economic activity of the organisations, so it makes it harder for government and business regulatory bodies to pick up malicious activities. Balance sheets lack adequate provision of time relevant information of the organisation’s current position, as they rely on historical data, which in turn might be flawed. Due to the absence of universal guidelines for financial statement analysis, the organisation will find it difficult to compare its performance at a specific time period its …show more content…
If the organisation is very profitable, competitors will want to adopt management strategies from them; this could also lead to more investments and expansion sooner rather than later.

Management accounting data can be biased. As it is derived from financial accounting data and other records, the exactness of the data can be affected. The data only seeks to provide support and therefore cannot be used as the staple of many decisions. The inclusion of future estimates, predictions and goals could mean data comes off as too ambitious. However third party accessibility to the management data could mean that, the organisation could come under scrutiny by the government, or investigative bodies, if there was a suspected by-pass of laws, poor performance, or suspicious activity.

In conclusion, primary users of management accounting information benefit more than those of financial accounting information. That said, third party users of management accounting data benefit less than those of financial accounting

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