Distinguishing Financial From Management Accounting

Distinguishing Financial From Management Accounting

Financial accounting is the area of accounting concerned with reporting financial information to interested external parties. However, management accounting is the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial information used by management to plan, evaluate, and control within an organization and to assure appropriate use of an accountability for its resources. Management accounting also comprises the preparation of financial reports for non-management groups such as shareholders, creditors, regulatory agencies, and tax authorities (Venture Line [VL], 2005).

Financial & Management accounting differ in a number of ways. Anderson stated some of the most significant ways that the two differ; financial accounting is something performed to agreed standards and principles (GAAP) designed to report true profits to the tax collector. Management accounting is a mechanism for using a financial metric (dollars) as a normalizing mechanism for making decisions about different choices and alternatives. Management accounting helps one decide whether it is better to add 900 customer account advocates in a call center in Ireland, against staffing a user experience and technical writing department in St. Louis, MO, and investing heavily in intuitive products (2004, pp. 1-2).