Comparison Of Financial And Management Accounting Accounting Essay
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Published: Mon, 5 Dec 2016
Financial accounting and management accounting play an important part in accounting information system .They co-exist in enterprise production and operation of management, constituting the modern enterprise accounting system together. Much information which management accounting required is from financial accounting, while financial accounting also put the established budget, standards organizations, and such daily accounting data from management accounting as the basic premise.
However, the reality is that financial accounting and management accounting has been completely separated by an increasing number of companies, which according to their own accounting methods to double account the data at the aim of external reporting and internal management. It is hard to achieve information sharing between the two sets of data, resulting in waste of resources and duplication of effort.
Therefore, companies should integrate financial accounting and management accounting effectively together, and give full play to the function of accounting information system to enable enterprises to obtain the dual needs of management and finance at the lowest financial cost.
Definition of financial and management accounting
Managerial accounting is used primarily by those within a company or organization. Reports can be generated for any period of time such as daily, weekly or monthly. Reports are considered to be “future looking” and have forecasting value to those within the company.
Financial accounting is used primarily by those outside of a company or organization. Financial reports are usually created for a set period of time, such as a fiscal year or period. Financial reports are historically factual and have predictive value to those who wish to make financial decisions or investments in a company (2007) .
Differences between financial and management accounting
Financial accounting and management accounting is two branches of the modern enterprise accounting. The most fundamental difference between them is information for internal decision-making or external provision for decision-making, but the two are interrelated and mutually complementary and mutually complementary relationship.
The focus is different
Financial accounting provides services to outside stakeholders through the record, classification, aggregation of everyday activities of companies and preparation of financial statements and other methods. Having been reviewed and notaried by certified public accountants, corporate financial statements are considered to be reliable by stakeholders, and they can accurately understand the enterprise’s financial position and operating results and make decisions according to the financial statements. From this perspective, the financial accounting is focused on export-oriented services. Precisely because of this character of the financial accounting, it is often called the external financial accounting.
Management accounting provides relevant economic information using a variety of specialized technical approach to the business managers at all levels so as to facilitate goal determining , decision making, preparation of plans, tighten the screws and conduct performance evaluations. From this perspective, management accounting is focused on in-house services. Therefore, people often call management accounting the internal accounting.
Management Accounting is not bound by accounting standards
Financial accounting is mainly for external services.
In order to obtain the confidence of external parties and protect their interests, there must be strict standards and basis for financial accounting, they are the “Accounting Law” and “enterprise financial rules”, “Enterprise Accounting Standards” and the relevant financial laws and regulations requirements at present in China. As the certified public accountants review corporate financial statements, they should focus on examining whether the financial statements comply with generally accepted accounting principles or the relevant provisions.
Management accounting is different because it is primarily for internal management services, hence, they are not constrainted by generally accepted accounting principles or accounting system. Managers at all levels can use a variety of technical methods of management accounting to obtain information, what kind of information is obtained depends on the type of decision-making, business type, and management needs.
Management accounting focuses on the future, while financial accounting describes the past.
External financial statements based on historical cost basis, and reflects what happened in the past. The information provided in this report is required to be true and fair, and only accurate and reliable financial information can obtain the confidence of external stakeholders.
Management accounting is required to predict the future and provide a variety of forecast information. At the same time, management accounting uses a more extensive concept of cost in decision-making analysis. Sometimes information is provided on the basis of estimates, to predict the future and make decisions on the basis of future, of course, this information can not be very precise, but the management accounting attaches great importance to the timeliness and effectiveness of information, and only to provide timely and effective information can they enable managers to seize the opportunity to make decisions. The company’s success depends largely on the timely and correct decision-making.
Financial Accounting has accounting period, while the management accounting has no
Financial accounting is a past-oriented, the financial statements is based on the record books and is prepared for a certain period, such as annual, quarterly or monthly . The financial statement is a summary of the financial position and operating results within a certain period.
Management Accounting is future-oriented, and can prepared a variety of reports according to the needs of management, from practice, there is no monthly, quarterly, annual limits, as long as management needs, it can be by the hour, the day basis, it can be prepared on the basis of a period in the past, yet can also be a period in future.
Financial accounting is overall, management accounting is the balance between overall and local
Financial accounting reports provided information on the summary of enterprise. This report deals with the entire enterprise as a whole, the financial accounting reports generally do not involve localized issues of internal departments, and units.
Management accounting provided detailed information in the report, this report not only reflects the overall situation of the enterprises, but also that of the local businesses, such as ministries, offices and other circumstances.
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Similarities between financial and management accounting
Financial accounting focuses on external services, but internal services is also included. Information which financial accounting provided on the funding, costs, profits and other information is very important for business management. In particular, financial statements can comprehensive and reflect all aspects of enterprise’s financial position and operating results. Study of the financial statements can grasp the overall situation of the enterprises, managers must first be aware of the overall situation, so that guide enterprises to continuously move forward. Therefore, managers must pay close attention, and be very concerned about the information provided by financial accounting. At the basic of the analysis of financial accounting, the plan could be developed to enhance control and make a scientific decision, how to further improve management and increase economic efficiency could also be studied. So we can not say financial accounting is just the external services, not domestic service, we can only say that the financial accounting focuses on external services.
Management accounting focuses on internal services, but it also contains external services. Investors and creditors concern about the enterprise’s financial position and operating results. In order to improve the enterprise’s financial position and operating results, precondition can only be based on strengthening internal management and improving the work quality and effectiveness at the aspects of production and management. In this regard, management accounting contributes a lot to correct business decision and timely provision of useful information. At the same time, investors and creditors in their decision-making also need to know a number of economic information provided by management accounting, which have important reference value when they make the right judgments and policy decisions.
Management accounting must obtain a variety of information from the different channels for planning and control of production and business activities, such as financial information, statistics, business accounting information and other relevant information. The most basic of which is financial information. For financial accounting has a fixed set of procedures and methods. Information will formed according to some time production and business activities and their results through the registration books, weaving statements, etc., which is not only for external use, but also for internal use. Management accounting can be developed based on financial information, making management accounting information to facilitate the regulation, control and decision making.
Functions of accounting are accounting and supervision. Management accounting and financial accounting have agreed to be subordinated to the general requirements of a modern enterprise accounting, which means the users of accounting information provide relevant information, to achieve enterprise internal objectives and meet the requirements outside the enterprise. So the ultimate goal of financial accounting and management accounting are the same.
Both of financial accounting and management accounting are faced with self-improvement and development. They have to confront the reality of a common problem: how to use modern computer technology to collect, process, store, transmit and report the accounting information; at the same time, they need to handle the demands of modern management properly according to the organization and implementation of accounting management .
Application of financial and management accounting
Main function of management accounting in the enterprise is to establish a variety of internal accounting control system and provide internal management needs of a variety of data and information at the aim of improving operational efficiency and effectiveness.
The main carrier of corporate financial accounting is the financial statements, which can reflect their overall financial condition, results of operations and financial condition changes. Financial statements is the main contents of financial reports, which provide financial information-based economic information to interest groups outside the enterprise, and also reflect the interest relationship among the businesses and investors, creditors and other parties. Users often have to use the financial reports as the main basis to make the economic decisions. Information providers of financial reporting are separate with the Information users of financial reporting. In order to obtain trust, it is necessary to specific ate the formation strictly during information processing, and transmission of the whole process. Accounting principles, accounting standards, the accounting system and other forms of financial accounting standards have come to the world.
Development of financial and management accounting
As the management accounting has no unique “accounting” methodology, and in the existing method, it looks messy, which result in there is no way for the general promotion, so it must innovate based on the methodology. Innovation and imitation mean that new ideas and methods are injected during the mimic process. For this reason, the priority of promotion of management accounting is to allow enterprises’ managers to try to imitate application management accounting methods, in order to form the management accounting application environment. Should China develop management accounting standards? This is one discussion during the October 1999 Chinese Accounting Society, Management Accounting and Applications Symposium. There are three views at the meeting: one agreed that it should be carried at once; the other said that timing was not coming; another argued that it was not necessary. But participants all agreed that the management accounting guidance and norms is necessary, because management accounting workers should be correctly guided.
We can not predict the future development of management accounting details ahead of a specific trend, but we think that the future will arise in the internationalization of management accounting, strategy-based and behavior-oriented trends. International Management Accounting, Strategic Management Accounting and Behavioral Accounting may represent the future direction of development of management accounting.
A large number of valuable accounting information such as human resources, intellectual capital, intellectual property rights could not be confirmed in the table, one of the main reason is that financial accounting can not choose the appropriate measurement attribute for these items. Even though some intangible assets in the current financial statements were confirmed, but not always reflect the true value of these intangible assets and are unable to deliver to investors the decision-making can lead to differences in accounting information. Possible development of financial accounting measurement reflected:
Gradually shift from the cost of measuring value measurement.
The current financial accounting measurement generally reflects the cost of light value as the most important characteristics. Historical cost can be put into measuring the level of assets, but can not reveal the real economic assets – the future economic benefits, especially in the soft assets. This defect led to a serious departure between the market value of companies and its book value. As investors become increasingly aware that the enterprise’s operating results have tentativeness. The balance sheet has an increasingly prominent position of the financial statements Balance sheet items will ensure a clean surplus and improve the information content of profit – the emergence of a comprehensive income statement can be seen as a signal that the cost measurement change into value measurement.
Recognition and Measurement will be more focused on the reflecting economic reality.
At present, the enterprise management authorities tend to control the use of their right to choose accounting policies, smooth operating performance of enterprises, and create the illusion of a stable development of enterprises. In other words, smooth false to cover up the “the truth of volatility. Financial accounting recognition and measurement should focus on the real picture of economic activity, faithfully reflect the company’s financial position and operating results, neither advance nor delay; no provision for excess accident prevention preparedness, non-recognition of deferred losses (Levitt, 1998). Of course, this requires high-quality accounting standards to regulate.
Problems of integration of financial accounting and management accounting
Financial accounting and management accounting have data communication problems. Financial accounting always provide information by tending to calculate the daily accounting based on manufacturing costs, which can’t match the changing cost information which the management accounting required for. It increases the workload of the accounting staff.
Financial accounting and management accounting inconsist in identification
The current financial accounting is basically to recognize at an accrual basis, while management accounting use cash-based system to recognize, which makes lack of uniformity between financial accounting and management accounting.
Financial accounting and management accounting inconsiste in investment project evaluation and assessment incompatible problems.
Management accounting recognizes the cost and measures the cost. The existing financial accounting only recognizes and measures the cost of debt capital. This difference will lead to incompatible efficiency of investment projects evaluation and assessment of investment projects efficiency in the use.
Solutions of integration of financial accounting and management accounting
In order to make financial accounting and management accounting coordinate and integrate, also promote the scientific development of accounting, following approach should be taken:
In the daily financial accounting using change cost method to make it easier for financial accounting and management accounting to interface.
Strengthen the theoretical basis. Accounting Control includes both the existing management accounting and current financial accounting. A complete theoretical system of accounting management can be formed only though the integration of financial accounting and management accounting of these two subsystems. So that accounting will play a better role in economic management.
Confirming the establishment of a new financial accounting basis and a variety of measurement model. One is to coordinate the financial accounting and management accounting to confirm the basis of accounting, the other is to make financial accounting and management accounting coordination and communication.
Strengthen accounting education and improve the quality of accounting personnel, in cultivating talents. So that integration of financial accounting and management accounting system can adapt to social development, in order to serve the enterprises and society better.
The financial accounting is external, while the management accounting is internal seems to have become theorists and practitioners consensus. This view is not only conducive for accounting to play the role of functions, but also hindered the development of accounting theory. Fundamentally speaking, the accounting system was developed by financial accounting and management accounting. It is the core of enterprise management system subsystems. As China’s accession to the WTO, the domestic enterprises – only need a broader international perspective through competition, survival, and development. In this process, the use of scientific management of the economy means to enhance enterprise’s core competitiveness. It will be the inevitable trend of development. So we have to integrate financial accounting and management accounting and change better to serve the enterprise.
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