Essay Example. Management and Financial Accounts and Their Usefulness

Successful operation of any business requires an exhaustive comprehension of the different aspects of organizational management. Firms have a broad spectrum of elements classified into departments that require good concepts for managing their financial and human resources. Some of the critical concepts in organizational management include Management Accounts and Financial Accounts. Just as the phrases sound distinct, their requirements, the demands of the business world towards them, and their general functionality also differ. This work will explore the terms and provide their characterizations based on functional differences.

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Difference in Descriptions

'Management Accounts' is a derivative of the phrase management accounting. Management accounting is a field that concerns analyzing and providing necessary information about the recurrent administrative cost of the business for efficient internal management (Diffen, 2020). Diffen (2020) also articulates the contrary of the concept. Financial accounting is a derivative of the phrase financial accounting. According to the website, the phrase is a branch of accounting that deals with adequate provision of financial information to the business stakeholders and creditors, and other parties that affect the operations of the firm.

Differences in Objectives

The two phrases also exhibit differences in their objectives. Diffen (2020) writes that the main aim of managerial accounting is to support management activities through the provision of useful information for planning of regular business operations. The concept also initiates the management team to set goals and evaluate if the business operations are towards the attainment of the goals. The process thus ensures that firms adequately account for how it uses its resources. The website also indicates the converse, articulating that financial accounting's main objective is to disclose the outcomes of the previously predetermined usage of the business resources. The concept also helps in determining and explaining the financial status of an organization on a particular date.

Differences in Respective Audiences

WallstreetMojo.com (2020) appreciates the existing differences between the types of audiences between the two concepts. The website inscribes that managerial accounting address the management team of a business which usually exists within the company. It focuses on the organization's human resources within the organization. The compilation of this type of information targets the business managers explicitly within the company. Business managers use the information primarily for purposes of planning, controlling, coordinating, and making decisions critical to the daily operations of the business. The business management team then employs the results of these sequences of activities for effective planning, evaluation, and day-to-day control of the organizations.

Conversely, financial accounts target stakeholders outside the business like the shareholders, creditors, and other parties with an interest in investing in the company (WallstreetMojo, 2020). Investors can gauge the progress of the business and decide when it is necessary to heighten the financial support for the firm using financial reports. Also, creditors can determine whether or not a firm has the capacity to repay loans before staking their money.

Varying Legal Implications

There is also a variation in the way the concepts welcome and handle cases relating to financial accounting and managerial accounting. Since management accounts are reports for an organization's internal management, they do not have a legal reinforcement. It is at the discretion of the organization's management to compile internal management reports (Diffen, 2020). Financial accounting reports have strict legal requirements. The law requires companies to provide statements within a predetermined financial period (Diffen, 2020). This requirement arises from the need for transparency between a business and its stakeholders.

Different Focus

As seen in the preceding discussions, the focus of the two accounting systems differs. Diffen (2020) appreciates the attention of managerial accounting to the existing business conditions. The need for a compilation of management reports emergencies every time the company needs to change its operations. The websites add that management reports may also be segmented for different departments, and wholesomely added for the organization. A small change in human resources, hiring new employees, and transferring them necessitates a compilation of managerial accounting. The focus of the reports is both for present and future use. The focus of financial accounting is the past activities of an organization. Financial accounts provide information on the spending of a company for a specified period, usually on a quarterly, semi-annual, or annual basis (WallstreetMojo, 2020). The main goal is to disclose the results of a company and disclose financial status on a given date.

Varying Rules

The rules that govern the two processes are also different. While financial accounts are subject to strict external regulations, management has non or reasonable internal controls from the organization management. Various authorities govern the operation of firms regarding the two aspects of accountability. The Generally Accepted Accounting Principles (GAAP) or the International Financial Reporting Standard (IFRS) are responsible for the standards of financial reports (Schiebel, A. 2007, 3-5). The format also ensures an easy analysis and comparison with market indicators like other companies and creditors.

Diffen (2020) acknowledges the role of the Charted Institute of Management Accountants (CIMA) in expounding on what it expects from management accounts and deliberates on the best approach of ensuring proper daily identification, measurement, analysis, and interpretation of management reports. Since the databases on either the company's internal goals. The law exempts companies from strict regulations and allows them to tailor them towards aesy use by the management.

Reporting Frequency and Duration

Each department tailors its reports to suit its demands. WallstreetMojo (2020) notes that the timing of management reporting is never predetermined. The organization's management determines when it is fit to compile the report. The frequency can take a daily, weekly, or monthly span. Managerial accounts are driven by the company's monetary and goals. Conversely, the law requires firms to compile financial reports and share with stakeholders at the end of the year, and the descriptions must be in a specific format (WallstreetMojo, 2020). These formats allow reports allows easy comparison of different firms. The reports are tabled on quarterly, yearly, and annually. The concept deals with verifiable monetary information.

Conclusion

Management and financial accounts differ both in their overall description and functions as far as their application. While management accounts majorly provide information useful for internal operations of the business, leaning more on human resources, financial statements provide valuable information to external players in the industry like shareholders and creditors. The interpretation of the two reports by their respective audience enhances the overall progress of the business. It is thus essential for business top management to understand the two concepts and provide for their timely compilation for the smooth operation of their company.

References

Diffen, 2020. Financial Accounting vs Management Accounting. Diffen. Available at: https://www.diffen.com/difference/Financial_Accounting_vs_Management_Accounting [Accessed May 7, 2020].

Schiebel, A., 2007. Value relevance of German GAAP and IFRS consolidated financial reporting: An empirical analysis on the Frankfurt Stock Exchange. Available at SSRN 916103. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=916103

WallstreetMojo, 2020. Financial Accounting vs Management Accounting (Top 11 Differences). WallStreetMojo. Available at: https://www.wallstreetmojo.com/financial-accounting-vs-management-accounting/ [Accessed May 7, 2020].