1.4 Financial and Management accounting

Financial Accounting

Financial accounting is mainly concerned with preparing financial statement. Examples:  Income statements, balance sheets, cash flow statements. The prepare these statements for external users providing funds (like shareholders and lenders), credit suppliers, tax authorities.

 

These statements will be of interest to managers but they need more details to make decisions. Providing such info and analysis is the function of management accounting. 

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Management Accounting

This area of accounting covers cost accounting and all areas of management descision-making such as setting the of a good for sale, deciding on the cost of a manufactured good and deciding what type of budget best suits a business.  

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Outside users of financial info

Outside users of financial info, such as capital providers, taxation officials and business lenders, want summarised financial info should be checked before the business makes it available.

For a sole trader, this checking process is done by the owner or an external accountant or internal employee. 

Preparing financial info for external users takes time, experience and knowledge. For larger private companies and all public companies, involves a detailed checking process by specially trained independent accountants known as editors. 

This area is mainly targeted at those outside a business. 

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Using the same accounting record for all accountin

Different routines of 'management' and 'financial' accounting do not mean that different accounting records must be kept. 

The different routines involve the same underlying accounting data but organised, summarised and communicated in rather different ways. 

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