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The Differences between Financial and Management Accounting - Assignment Example

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The paper “The Differences between Financial and Management Accounting” deals with key financial statements, types of business entity, ways in which businesses adjust their accounts for accruals and prepayments, the problems encountered in dealing with the depreciation of non-current assets etc.  …
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The Differences between Financial and Management Accounting
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Download file to see previous pages Management and managerial accounting are used by the management to make decisions with regards to the daily operation of the business. It is based on the past performance of the business. It relies majorly on the forecasting of market trends and markets.
Management accounting is internally presented while financial accounting is meant for the external stakeholders. Financial management is important to the current potential investors while management accounting is used by managers in making current and future financial decisions. Finally, financial accounting is succinct and adheres to the Generally Accepted Accounting Principles (GAAP) while management accounting is usually a guess or estimate given that a myriad of managers rarely have time for exact numbers when they need to make decisions.   
Some of the key financial statements include;  Income statement (profit and loss account), Balance sheet, Cash flow. 
Income statement tells the users about the earnings and the profitability of the business. The statement is for a specific period of time. The periodic statements are important given that the owners can know the periodic performance of the company. It shows the sales first then cost of sales, the differences of which gives the gross profit. Then it explains the operating expenses which are subtracted from the gross margin to show Earnings Before interests and Taxes (EBIT). It then subtracts expenses and taxes to get the net profit.
The balance sheet shows the financial position of the business. It tells the investors whether the company is able to pay its bills on time and the flexibility in the acquisition of capital and the distribution of cash distribution in terms of dividends. The key items are assets, liabilities, and equity. ...Download file to see next pagesRead More
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