General accounting helps deliver essential information so business professionals can make wise economic decisions. In a business, the two types of reports prepared are management and financial, which are both essential in their own way.
But for those who don’t know much about the specifics of accounting, what’s the difference?
What is Financial Accounting?
Financial is a specialized branch of accounting that keeps record the financial transactions of a company. The transactions are recorded, summarized and presented in a financial statement or financial report such as a balance sheet or an income statement.
Financial statements are issued on a routine schedule and are considered external because they are given to people outside the company with the main receivers are owners or stockholders. But if a company’s stock is publicly traded, the financial statements are likely to be widely circulated reaching competitors, customers and employees.
The most important take away from financial accounting is that its purpose is no to report the value of the company. Rather, its purpose is to supply information for other to assess the value of the company.
What is Management Accounting?
Management accounting, also known as managerial accounting or cost accounting, is the process of identifying, measuring, evaluating, defining and expressing information for the interest of a company’s goals. It helps to identify the information a company needs to develop systems for planning, forecasting, budgeting and performance measurement purposes.
What’s the Difference Between Financial Accounting and Management Accounting?
The main difference between management accounting and financial accounting is that financial accounting is aimed at supplying information to parties outside of company, while management accounting is targeted towards helping managers within a company make decisions.
How Do They Benefit Your Business?
Reports from management and financial accounting provide the appropriate recipient with benefits that are unique to each format. Their differences make them important in different ways, but equal in significance.
Financial accounting reports provide the accuracy financial professionals need to measure the solidity of company. These reports are also used to do a company’s taxes, so the need for accuracy has to be top priority.
Management accounting reports provide estimates for what might occur in the future for a company. Companies need these projections and would rather use estimates on what will happen than reports on what has already happened, which benefits the future of the company. Investors and tax professionals need these numbers, so they can properly assess a company’s performance. Managers within the company must constantly be thinking about the future of the company, which makes management accounting crucial in planning ahead financially and thinking of ways to grow based on estimates of what will happen.
If your company is interesting in outsourcing your financial or management accounting, get in contact with us today!