What's the difference between Financial Accounting and Management Accounting - Essay Example

Whats the difference between Financial Accounting and Management Accounting? The nature of accounting forms the backbone of business and corporateenvironments. Accounting theory has even considered the specific ways businesses function in relation to accounting practices. Additionally, accounting practices impact individuals everyday in the ways and means taxes are recorded and paid. While the notion of ‘accounting’ has widespread importance, it’s important to note that there are different forms of accounting.

This essay examines the differences between management accounting and financial accounting. There are a number of elements that divide management and financial accounting. While management accounting is largely implemented for individuals working within the organization, financial accounting generally functions for external entities. In terms of financial accounting there are a number of specific considerations. Although law does not require management accounting, financial accounting is a necessity for organizations.

The requirements for corporations to keep financial accounting records is a large consideration, as recent Dodd-Frank regulation has necessitated that expensive accounting measures be kept to ensure that accurate records are established. Within this spectrum of understanding financial accounting is further distinguished, as it requires an external review by a certified public accountant (CPA). It follows that external stakeholders use financial accounting. Generally these external stakeholders implement financial accounting reports as a means of making investment decisions, as the financials of a company are the primary determinant of equity value.

In addition to management accounting being for individuals within the organization and financial accounting being for external stakeholders, there are a number of further differentiating factors between these forms of accounting. While financial accounting necessarily involves the entire organization, oftentimes management accounting is implemented for significant sectors of the business or corporation. This division is such that it creates significant structural divisions between these forms of accounting.

While the structure of financial accounting is regulated by the Internal Revenue Service and accounting regulations, managerial accounting is contingent only on the strategic initiatives within the organization. For instance, management accounting records may occur on a daily, weekly, or monthly basis. Additionally, management accounting oftentimes has a strategic angle, as it allows internal officers examine the nature of future revenue and profit shifts for management functions. This is starkly different from financial accounting; as the government necessitates these accounting measures reflect the true and accurate financial situation of the company.

In conclusion, this essay has examined the difference between managerial accounting and financial accounting. Within this context of understanding the essay demonstrates that management accounting is implemented within the organization for management and strategic decision-making. Conversely, financial accounting is conducted primarily for external stakeholders. While law does not require managerial accounting, financial accounting is strictly required and regulated by the government. Ultimately it is these divergent factors that further contribute to the structural differences between these forms of accounting.

ReferencesColin Drury (2007), "Differences between management accounting and financial Accounting." Management and Cost Accounting