1. Objective: The main objective of financial accounting
is to provide financial information to external stakeholders, such as investors,
creditors, regulators, and the general public. It focuses on the preparation and
reporting of financial statements, including the balance sheet, income
statement, statement of cash flows, and statement of changes in equity.
2.
Audience: Financial accounting is primarily aimed at external users who are
interested in the overall financial performance, position, and changes in the financial position of an organization. These users rely on financial statements
to make investment decisions, assess creditworthiness, and evaluate the
financial health of a company.
3. Reporting Frequency: Financial accounting
follows a periodic reporting cycle, typically on a quarterly and annual basis,
as required by regulatory bodies and accounting standards.
4. Compliance:
Financial accounting is subject to various regulatory requirements and
accounting standards, such as the International Financial Reporting Standards
(IFRS) or the Generally Accepted Accounting Principles (GAAP) in the United
States. Compliance with these standards ensures consistency and comparability in
financial reporting across different organizations.
5. Historical Perspective:
Financial accounting primarily focuses on past financial transactions and
events. It provides a historical view of an organization's financial performance
and position.
Managerial Accounting (also known as Management Accounting):
1.
Objective:
The main objective of managerial accounting is to provide relevant
financial and non-financial information to internal stakeholders, primarily
managers and decision-makers within an organization. It focuses on providing
information for planning, controlling, and decision-making purposes.
2.
Audience:
Managerial accounting is intended for internal users, such as
managers, executives, and employees, who require information to make informed
decisions. It helps managers in areas such as budgeting, cost analysis,
performance evaluation, and strategic planning.
3. Reporting Frequency:
Managerial accounting reports are prepared as and when needed by management. The
reporting frequency can vary based on the requirements of the decision-making
process.
4. Flexibility:
Managerial accounting offers more flexibility in
reporting formats and information content. It can include both financial and
non-financial information, such as forecasts, budgets, variances, and key
performance indicators (KPIs), to support decision-making.
5. Future-oriented:
Managerial accounting focuses on providing information for future planning and
decision-making. It assists managers in evaluating different alternatives,
setting goals, and formulating strategies to achieve organizational objectives.
6. Cost Analysis:
Managerial accounting places significant emphasis on cost
analysis and cost management. It involves analyzing costs, such as direct costs,
indirect costs, fixed costs, and variable costs, to support pricing decisions,
cost control, and profitability analysis. In summary, financial accounting is
primarily concerned with providing financial information to external
stakeholders for decision-making and compliance purposes, while managerial
accounting focuses on providing relevant information to internal stakeholders to
support planning, controlling, and decision-making within an organization.
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