Management accounting - Essay Example

It includes a proper comparison of the roles that are performed by management accounting with those that are performed by financial accounting. An appropriate definition of ‘management accounting’ is provided by Institute of Management Accountants. According to this institute, management accounting is the process through which financial information is identified, measured, accumulated, analyzed, prepared, interpreted and communicated to the management who then use these information for the purpose of planning, evaluating and controlling the operations of the firm (Siegel and Shim, Accounting handbook).

Management accounting helps in preparing financial reports for various non-management groups like tax authorities and regulatory agencies. In simple words management accounting is such an accounting system that helps an organization and its management to plan, control and make effective decisions. Financial accounting, on the other side, is all about maintenance of record, classification and summarization of financial transactions. American Institute of Certified Public Accountants has clearly defined the term ‘financial accounting’.

As per this definition, financial accounting is referred to the art of recording, categorizing as well as summarizing the events and transactions that includes at least one financial character. Three of the basic functions of financial accounting are recording, categorizing and summarizing (Kesavan et al. Engineering Economics and Financial Accounting). According to Vijayakumar, financial accounting and management accounting are the two important branches of accounting and as a consequence they are interrelated.

He also opined that management accounting, to a great extent, is the rearrangement of data that arise out of the practice of financial accounting. However, there are several points or aspects where significant differences can be found between these two branches of accounting. Each of these