Although financial accounting and management accounting are closely interrelated but they have some certain points of difference between management accounting and financial accounting and they are given below:
Difference between management accounting and financial accounting
- Objective: The primary objective of financial accounting is to make periodical reports to shareholders, creditors, and other external parties. Management accounting is to provide information to the management for planning and controlling and decision making.
- Time focus: Financial accounting emphasis on past activities. Management accounting emphasis decision affecting the future.
- GAAP: Financial accounting must follow the rules and principles of GAAP. Management accounting may not follow the rules and principles of GAAP.
- Subject matter: Financial accounting focuses on the whole organization. Management accounting focuses on segments of an organization.
- Audit: In the case of financial accounting, an audit is mandatory for external by chartered accountants. On the other hand, the audit is not mandatory in management accounting.
- Precision versus timeliness: Financial accounting emphasis on precision. Whereas, management accounting emphasis on timeliness.
- Verifiability versus relevance: Financial accounting emphasis on precision. Whereas, management accounting emphasis on relevance for planning and control.
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