Financial and Managerial Accounting Essay

Executive sum-up

Though, fiscal accounting and managerial accounting systems prepare and analyze the same fiscal informations, they besides differ in some facets. For illustration the users of the information are different. Besides the processs for their readyings differ including the clip frames. Cost accounting is another domain of accounting that deals with the analysis of costs of merchandises and activities in an organisation. It forms a significant portion of managerial accounting since through it, the direction can besides do determinations. This paper analyzes the similarities a crestless wave as differences between the two.


Management accounting is and accounting system that provides the direction with techniques that provide of an organisation with information for intents of internal usage like determination devising and effectual control of the organisation ‘s resources. Harmonizing to Enotes web site ( 2010 ) , procedures in direction accounting provide information for determination shapers in a company. Contrary, fiscal accounting processs provide information to external users like the stockholders of a house, authorities bureaus, and creditors to the house. Management accounting studies are normally generated anytime ; daily, hebdomadal, monthly, or quarterly. While persons in an organisation decide direction accounting methods, fiscal accounting techniques must conform to external criterions like the international fiscal accounting criterions developed by fiscal accounting criterions board ( FASB ) . Cost accounting is frequently confused with direction accounting. Cost accounting involves finding the cost of an activity while direction accounting goes beyond to unite multiple direction subjects that contain fiscal information for internal determination devising. Therefore cost accounting can be said to a necessary constituent of direction accounting ( Enotes website, 2010 ) .

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Features of direction accounting processs

Harmonizing to netTOM web site ( 2010 ) , direction accounting processs should posses the undermentioned processs. They should be ; Relevant for the intent, complete, accurate, clear and precise to the director, seasonably, communicated through the appropriate channel, less dearly-won to supply and the volume should be manageable.

The function of direction accounting

Management accounting plays the undermentioned functions within an organisation:


the information provided by direction accounting processs is critical in planning and budgeting procedures. This is because such information contains assorted costs like pricing, merchandise costs and capital outgos.


the direction is in a place to see which activities are non conforming to the program from the studies provided by the direction accounting ( netTOM web site, 2010 ) .


the direction comptroller can reenforce the organisational model of the organisation by orienting the accounting construction to the organisational construction.


the directors and other staff are ever motivated by the budgets prepared by the direction comptroller.

Decision devising:

this is one of the major maps of direction accounting processs. Through the aggregation and analysis of informations, the studies he or she presents to the directors assist in determination devising ( netTOM web site, 2010 ) .

Similarities between fiscal accounting and direction accounting

Despite the two Fieldss holding legion differences, there besides many countries of similarities as specified below ;

O Certification: both Fieldss emphasize on enfranchisement. For one to be certified, he/she must go through the test that are concerned in each field of specialisation. Certifications come in signifier of certified direction accounting and certified public accounting ( Ehoh website, 2010 ) .

O Review of historical informations: both systems prepare studies establishing on historical informations reappraisal. In fiscal accounting, this is for comparing intents of the concern between the present and the past, while for direction accounting, it is for finding the current public presentation of the organisation and to come up with a concern fiscal prognosis of the hereafter ( ehow web site, 2010 ) .

O Measurement of the currency: the unit of measuring in coevals of studies in the two systems is the currency. The studies generated are thenceforth used to give touchable information to concern proprietors or demo the fiscal province of the concern. They can besides be used to be after and bring forth the budget for the concern ( ehow website, 2010 ) .

O Terminology used: both systems of accounting usage similar accounting nomenclature. E.g. debits and credits are used in both systems to depict the money that goes out and the money that go in to the concern severally ( ehow web site, 2010 ) .

O Techniques: the accounting techniques employed by both the systems are fundamentally the same. E.g. the technique that is used to find the existent cost of the merchandise ( ehow web site, 2010 ) .

Differences between Financial and managerial accounting

Although both fiscal accounting and direction accounting supply information to the user for determination devising, there are assorted differences between the two as summarized in the tabular array below.

Fiscal accounting

Management accounting

Information from Financial accounting system is used by external parties to the organisation like the creditors, stockholders etc

Information from direction accounting processs is for internal usage by the organisational direction.

Fiscal accounting studies provide information on fiscal public presentation of an organisation over a given period of clip and the province of personal businesss for the organisation at the terminal of the period.

Management accounting studies are for be aftering and control activities and besides for determination devising in an organisation.

It is mandatory harmonizing to the jurisprudence for limited companies to fix fiscal statements.

Management accounting studies have no legal demand.

Fiscal accounting statements are an terminal to themselves as they dwell chiefly on the whole organisation aggregating costs and grosss from different sections.

Management accounting information can non be an terminal to a merchandise but instead assistance in determination devising. Besides direction accounting may give focal point to specific countries and non every section.

Basically, a historical image of a past operation is presented by fiscal accounting processs.

In direction accounting, both the historical yesteryear of the immediate yesteryear and a future tool for planning is given.

Fiscal accounting records should be provided for at least a period of 12 months.

There is no clip bound for direction accounting records.

The international accounting criterions must be followed in the readying of accounting statement ( fiscal histories of assorted companies can be compared ) . I.e. By and large accepted Accounting Principles must be followed ( GAAP ) .

There are no rigorous regulations to regulate direction accounting record readying ( no demand to follow GAAP ) . The records are used by directors of the organisation and hence there is no demand for comparing.

A specific format specified by the IAS is to be followed in the readying for fiscal statements.

There is no specified direction accounting format and hence no specific statements should be produced.

The nature of fiscal statements most frequently is of fiscal nature.

Management accounting information non needfully money related. It can besides be non-monetary.

( NetTOM website, 2010 )

Types of direction accounting studies

Since direction accounting is a critical portion of the planning tool kit, you can happen the undermentioned managerial studies within Pouch:

§ Variance analysis:

this normally determines the criterion, projections and existent costs of an activity. One cardinal component to the company ‘s benchmark is the difference between the existent and the criterion costs, i.e. how much it can be to bring forth the same computing machine bit by two different computing machine makers. The organisation can analyse its planning processes utilizing the projections or gauge discrepancy analysis. Through discrepancy analysis, there is a particular field called constriction accounting that examines the comparative costs and the discrepancies created through production constrictions ( lovetoknow web site, 2010 ) .

§ Cost analysis:

this is a type of managerial accounting that analyzes the exact cost of a merchandise. This normally starts with happening out the cost of direct disbursals like stuffs and labour. There are other sophisticated direction accounting techniques that include analysis of indirect disbursals. They include cost projection accounting, ciphering chance costs and installation operating expenses. These techniques basically analyze alternate ways in which the company could hold invested the financess ( lovetoknow web site, 2010 ) .

Activity based costing:

this type of bing technique analyzes the cost of activities establishing on their cost instead than the merchandise. Its advantage is that it allows for deeper analysis of the company ‘s interrelated parts. This method divides merchandises into ;

§ Unit- degree activities ( production of one unit ) .

§ Batch degree activities ( cost per batch ) .

§ Product sustaining activities.

§ Facility sustaining activities.

The above study indicates Normal Costing System Per Unite Costs Retrieved from: hypertext transfer protocol: //

Accounting studies prepared on net income public presentation for a company may besides bespeak some of the expected managerial accounting responsibilities. The illustration below was drawn from ABC System Profit Performance. The illustration that follows indicates normal bing system net income public presentation.

ABC System Profit Performance study retrieved from: hypertext transfer protocol: //

Normal Costing System Profit Performance study retrieved from hypertext transfer protocol: //

A concern procedure like research development can be examined by either entire cost analysis and/or rhythm cost analysis. This is because both methods analyze the entire disbursals involved in a concern activity. Therefore the two methods are really of import N finding the company ‘s profitableness ( lovetoknow web site, 2010 ) .

Tax return on investing: this is a type of cost analysis that includes cost analysis of course while mensurating the direct returns every bit good as ciphering the ratio ( lovetoknow web site, 2010 ) .

Projections: this include future estimation of the organisation such as ; demand, gross revenues, disbursals, necessary resources and the figure of needed employees. Projections form one of the most complicated countries of managerial accounting because of the trouble ion anticipations caused by rising prices, consumer demand and material monetary values. Therefore, they are built on extended mold.

Balanced scorecard: this normally includes standard fiscal steps. These steps include on positions of the client on satisfaction, concern procedure, invention and position on acquisition ( lovetoknow web site, 2010 ) .

Digital splashboards: these are applications that are designed in the signifier of a auto ‘s splashboard to expose critical concern information. They provide needed information fat merely at a glimpse. Through them, the director is able to see the latest information about the company in the company ‘s concern contexts ( lovetoknow web site, 2010 ) .


Management accounting and fiscal accounting are two major accounting systems used by assorted organisations. Despite their usage, they are wholly different. Whereas fiscal accounting is prepared after a certain period of clip and used by external users, managerial accounting is prepared by the direction comptroller for internal usage of the direction and it has no specific format to be used therefore no demand for comparing with other organisations. The similarities of the two scope from compulsory enfranchisements, usage of currency, nomenclature used to similar engineering. Examples of managerial accounting studies available are the discrepancy analysis, cost analysis, return on investing, projections and digital elan boards.


Ehow web site, 2010: “Similarities of Financial and Managerial Accounting.” Retrieved on February 15, 2010 from: hypertext transfer protocol: //

Enotes website, ( 2010 ) . “Managerial Accounting.” Retrieved on February 15, 2010 from: hypertext transfer protocol: //

Lovetoknow web site. ( 2010 ) . “Managerial Accounting.” Retrieved on February 15, 2010 from: hypertext transfer protocol: //

NetTOM web site. ( 2010 ) . “Financial and Management Accounting.” Retrieved on February 15, 2010 from: hypertext transfer protocol: //


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