Distinguish between Financial accounting and management accounting

Financial Accounting:

1. Purpose:

·         Financial accounting primarily serves external stakeholders, such as investors, creditors, regulatory authorities, and the public.

·         Its main purpose is to provide a historical record of an organization's financial performance and position for decision-making by external parties.

2. Reporting Frequency:

·         Financial accounting generates periodic reports, typically on an annual, quarterly, or monthly basis.

·         It focuses on producing financial statements like the balance sheet, income statement, and cash flow statement.

3. Scope:

·         Financial accounting is concerned with recording and summarizing past financial transactions and events in a standardized format.

·         It follows Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS) for reporting.

4. Regulatory Compliance:

·         It is subject to strict regulatory and legal requirements to ensure accuracy and transparency in financial reporting.

·         Financial statements are often audited by external auditors.

Management Accounting:

1. Purpose:

·         Management accounting primarily serves internal stakeholders, including managers, executives, and employees.

·         Its main purpose is to provide information for planning, decision-making, and control within the organization.

2. Reporting Frequency:

·         Management accounting generates reports as needed, often in real-time or on a more frequent basis.

·         It focuses on providing detailed information tailored to specific managerial needs.

3. Scope:

·         Management accounting is broader in scope, encompassing various types of information, including financial and non-financial data.

·         It is flexible and can adapt to the specific requirements of management.

4. Regulatory Compliance:

·         It is not subject to external regulatory requirements like financial accounting.

·         Management accounting reports are not typically audited by external parties.

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