Primary users Financial accounting : the primary users of financial accounting are the external users, shareholders, investors , creditors, lenders and government. Share holders are using financial information to know about their investment e. g how the investment is running, what is the organization profit and what is the value of the organization. Investors use financial information to know in which organization they should invest and to look how was the organsation performance in the past so that help them to decide whether to invest or not.
Creditors and lenders use financial information to see how is the financial position of the company and dose it able to meet its obligations so it help them to decide whether to give the organization loan or not. Government required financial information to know what is the profit of the company so that it can impose the taxation on it. Management accounting: the users of management accounting is the internal users, managers and employees. for use by managers in planning, performance evaluation, and operational control: – Planning: For example, deciding what products to make, and where and when to make them.
Determining the materials, labor, and other resources that are needed to achieve desired output. – Performance evaluation: Evaluating the profitability of individual products and product lines. Determining the relative contribution of different managers and different parts of the organization. – Operational control: For example, knowing how much work-in-process is on the factory floor, and at what stages of completion, to assist the line manager in identifying bottlenecks and maintaining a smooth flow of production. Type of reports
There are to types of reports from accounting information, Internal reports and External reports. * External reports are reports prepared by financial accounting, used by external parties who have an economic interest in the firm, it contains Balance sheet, Income statement and Statement of cash flows. For the balance sheet it report that the financial position of the company and its valuation, where the Income statement reports how is the performance of the company as it indicates how much the profit of the company and how was its sales.
So financial accounting reports are external reports which useful for the external users as mentioned above on how each user use these financial information. * Internal reports are reports prepared by management accounting, used by internal users who is managing, organizing, planning and controlling the company. Planning: Identify objectives the company wants to accomplish which will add value to the company and increase profits, Discuss ways to accomplish the objectives and Prepare budgets to accomplish the profit objective. Controlling:
Make sure the plans are being followed and objectives are accomplished, Performance reporting – compare actual results to the budget and Implement changes when objectives and goals are not being accomplished. Decision Making: Use all information provided to make good business decisions Focuses Financial accounts concentrate on the business as a whole rather than analysing the component parts of the business. For example, sales are aggregated to provide a figure for total sales rather than publish a detailed analysis of sales by product.
That mean financial accounting dose not look in details for each transaction and figure it just provide the figure of total amount. Whereby Management accounts focuses on specific areas of a business’ activities. For example, they can provide insights into performance of: – Products , how much is the cost of the product, how much is the selling price and when to produce this product. – Departments / divisions, what is happening in each department, how each department related to each other and so on. Purposes
Financial accounts describe the performance of a business over a specific period and the state of affairs at the end of that period. The specific period is often referred to as the “Trading Period” and is usually one year long. The period-end date as the “Balance Sheet Date. Where Management accounts are used to help management record, plan and control the activities of a business and to assist in the decision-making process. They can be prepared for any period (for example, many retailers prepare daily management information on sales, margins and stock levels). Scope of Information