Knowing the difference between management accounting and financial accounting is very important for those of you who are struggling in the business world.
The reason is, the business world has a close relationship with accounting , especially in making financial reports that affect important decision making in a company.
Well, in accounting, it is generally divided into two parts, namely management accounting and financial accounting.
The party that uses financial accounting is the company’s external party, while the company’s internal party uses management accounting.
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So, so that you understand better what are the differences between management and financial accounting, let’s look at the full review below.
Definition of Financial Accounting According to Experts
Financial accounting is one of the important things to know in a business.
So, here are some definitions of financial accounting according to a number of experts that you need to know.
1. Kieso & Weygant (2000)
According to Kieso and Weygant (2000), he explains financial accounting as a series of processes that can produce financial reports related to the company as a whole, which can be used by external and internal parties of the company, like a ledger that records all transactions that occur with business bookkeeping applications on a certain period.
2. Sugiarto (2002)
Furthermore, Sugiarto (2002) also defines financial accounting.
He explained that financial accounting is a science in accounting that focuses on preparing financial reports in stages.
Furthermore, he explained that the financial statements also function as a form of corporate management responsibility to investors or shareholders.
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3. Warren Reeve Fess (2008)
The definition of financial accounting is according to Fess (2008) which explains that financial accounting is the reporting and recording of information, which also includes the company’s economic activities.
4. Response (2012)
Furthermore, Martini (2012) also provides a definition related to what financial accounting is.
He explained that financial accounting is accounting that has an orientation towards reporting to external parties of the company.
5. According to Jogianto (1997)
Finally, Jogianto (1997) defines financial accounting as a form of providing information in the form of relevant reports and periodically.
Examples are balance sheets, income statements, retained earnings, and so on.
Definition of Management Accounting
Before you know what are the differences between management accounting and financial accounting, first know what management accounting is.
This is so that you better understand the differences between the two types of accounting.
Understanding management accounting is a process in preparing operational reports of a business.
Well, this management accounting can later help company managers or company leaders in making long-term and short-term decisions.
How does management accounting help the development of a business?
This is because management accounting can identify, analyze, measure, and report it all to company managers.
Some experts also provide a definition of what management accounting is as follows.
1. Mulyadi (2001)
According to Mulyadi (2001), he explained that management accounting is financial data obtained through a number of managerial accounting.
Especially managerial accounting used for the company’s internal interests or by internal users within a company.
2. Halim and Supomo (2000)
Furthermore, Halim and Supomo (2000) define management accounting as an activity that can create data or information in the form of financial data for company management.
He further explained that management accounting is useful for making decisions in a company.
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The difference between Management Accounting and Financial Accounting
So, now that you know the meaning of management accounting and financial accounting, let’s find out what are the differences between management accounting and financial accounting.
1. Differences in Terms of Purpose
The first difference between management accounting and financial accounting is that you can see it in terms of its purpose.
Financial accounting aims to produce financial statements in a company for a certain accounting period.
On the other hand, management accounting aims to produce detailed and specific reports.
Management accounting also aims to identify problems that exist in a company and find solutions to these problems.
2. Differences in terms of users
You can see the difference between management accounting and financial accounting in terms of its users.
Financial accounting is used by external parties or users outside the company.
Therefore, financial accounting has no influence on corporate decision making.
Examples of company external parties are investors, creditors, government, or financial analysts.
Meanwhile, users of management accounting are internal parties within a company.
Thus, management accounting has an influence on decision making in a company.
Examples of management and internal company parties are sales, managers, supervisors, executives, and so on.
3. Scope of Use
The difference between management accounting and financial accounting also lies in the scope of their use.
Financial accounting produces reports that contain financial data or information in a company as a whole, which includes income statements, balance sheets, and so on.
Meanwhile, management accounting produces reports containing information or data whose purpose is only to report on one part of a company.
For example, management accounting reports are only reported to the production department, marketing department, and others.
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4. Time Range
The difference between management accounting and financial accounting can also be seen from the time span.
Financial accounting has financial reports that are not very flexible in nature.
Therefore, management accounting reports only cover a certain period of time, for example a monthly period, one year, or half a year.
On the other hand, the timeframe for management accounting is more flexible when compared to financial accounting, for example weekly or daily.
5. Interests
The interests of financial accounting are more directed to external parties to make investment and economic decisions as well as evaluate management performance.
The benefit of management accounting for internal company users is to provide up-to-date and upcoming data, for example, budgets, operational optimization, work evaluations, and so on.
6. Function
The function of financial accounting is to report on the condition and performance of the company for external parties, such as investors.
Management accounting is more directed to the way of internal communication, such as to managers.
7. Difficulty level
The level of difficulty in management accounting is relatively higher than financial accounting because management accounting requires experts from various disciplines.
8. Judging from the focus of information
The next difference between management accounting and financial accounting lies in the focus of the information conveyed.
Financial accounting focuses on information that existed in the past and shows an overview of the responsibilities of company management for the activities of managing company funds.
Meanwhile, management accounting has an information focus on future data.
9. Type of Information
Management accounting has types of information that measure operational and financial.
These measurements include measurements of technology, suppliers, customers, and competitors.
Meanwhile, management accounting has a type of information that only measures finances and is based on SAK (Financial Accounting Standards) principles.
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10. Nature of Information
The last difference between management accounting and financial accounting lies in the nature of the information.
The nature of information for financial accounting is that it must be testable, objective, accurate, and requires high precision.
In general, the management will use the services of an independent third party.
Meanwhile, the nature of the information from management accounting is to make decisions for direction, control planning, and organizing.
The next nature is that management accounting is closed or cannot be published to external parties of the company.
Even so, these two types of financial accounting can still be managed in one place if you use good online accounting software .
So, those are 7 differences between management accounting and financial accounting that you need to know because these two things are two different things.