Read The Text Carefully To Answer The Questions
Read The Text Carefully To Answer The Questions
Read The Text Carefully To Answer The Questions
stakeholders. Although financial management is of great importance to current and potential investors,
management accounting is necessary for managers to make current and future financial decisions.
Financial accounting is precise and must adhere to Generally Accepted Accounting Principles (GAAP),
but management accounting is often more of a guess or estimate, since most managers do not have
time for exact numbers when a decision needs to be made.
Financial and management accounting are both important tools for a business, but serve different purposes. A business
uses accounting to determine operational plans in the future, to review past performance and to check current business
functions. Management and financial accounting have different audiences, as investors are not usually involved in the
day-to-day operations of the business but are concerned about their investment, whereas managers need information
quickly to make daily business decisions.
Financial Accounting
Financial accounting is used to present the financial health of an organization to its external stakeholders. Board of
directors, stockholders, financial institutions and other investors are the audience for financial accounting reports.
Financial accounting presents a specific period of time in the past and enables the audience to see how the company
has performed. Financial accounting reports must be filed on an annual basis, and for publically traded companies, the
annual report must be made part of the public record.
Management Accounting
Management or managerial accounting is used by managers to make decisions concerning the day-to-day operations
of a business. It is based not on past performance, but on current and future trends, which does not allow for exact
numbers. Because managers often have to make operation decisions in a short period of time in a fluctuating
environment, management accounting relies heavily on forecasting of markets and trends.