FINANCIAL ACCOUNTING
What is the difference between financial accounting and management accounting?
Distinguishing financial accounting and management accounting
Financial accounting
- Focus: external reporting
- Using financial statements to report to investors, government authorities, stock exchanges, other interested parties
- Statements: balance sheet, income statement, cash flow statement
- Must follow "generally accepted accounting principles" (GAAP)
- Perspective: historic; reporting on what happened in the past
Management accounting
- Focus: internal customers (i.e., managers)
- Routine reporting to managers for cost planning and control, performance evaluation
- Routine reporting to managers on profitability of products, customers, markets, etc.
- Non-routine reporting to managers for strategic and tactical decision-making
- Not restricted by GAAP rules
- Perspective: utilizes historic data, but emphasizes the future
- The remainder of this section explores financial accounting in greater detail
- Management accounting issues are discussed in the following section
- What are the basic financial statements and what is the purpose of each?
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