Differences between management accounting and financial accounting by solehin251

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									Management Accounting
Differences between management accounting and financial accounting


Question 1 What makes the differences between management accounting and financial accounting are the ability of management accounting to gives a report that been considered future looking to forecasted value to those within the company. Financial accounting is used primarily by those outside of a company or organization and financial reports are historically factual and have predictive value to those who wish to make financial decisions or investments in a company.

Management accounting is the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for non management groups such as shareholders, creditors, regulatory agencies and tax authorities.

The core activities of management accounting include;

a) Participation in the planning process at both strategic and operational levels. This involves the establishment of policies and the formulation of plans and budgets which will subsequently be expressed in the financial terms.

b) The initiation of and the provision of guidance for management decisions. This involves the generation, analysis, presentation and interpretation of appropriate information.

c) Contributing to the monitoring and control performance through the provision of reports on organizational performance, including comparisons of actual with planned or budgeted performance, and their analysis and interpretation.

Financial accounting mean while is the periodic reporting of accounting as required by statue for shareholders, government agencies and other parties’ external to the business. As such, various conventions and rules are necessary to ensure consistency between the sets of accounts. Financial accounts describe the performance of a business over a specific period and the state of affairs at the end of that period. The specific period is often referred to as the "Trading Period" and is usually one year long. The period-end date as the "Balance Sheet Date"


Question 2: Management Accounting versus Financial Accounting

Table 1: Main differences between management accounting and financial accounting.

Management accounting

Financial accounting

A management accounting system produces A financial accounting system produces information that is used within an information that is used by parties external to the organization, such as shareholders, bank and creditors.

organization, by managers and employees

Management accounting helps management Financial accounting provides a record of the to record, plan and control activities and aids performance of an organization over a the decision making process. defined period and the state of affairs at the end of that period.

There are no legal requirements for an Management





organization to use management accounting. specific areas of organization activities. Limited companies must, by law prepare financial accounts.

Information may aid a decision making rather Financial accounts are an end themselves. than be an end product of a decision. Financial accounting concentrates on the organization as a whole, aggregating

revenues and costs from different operation. Management accounting information may be Most financial accounting information is of a monetary or alternatively non monetary. monetary nature.

Management accounting provides both an Financial accounting presents an essentially historical record of the immediate past and a historical picture of past operation. future planning tool No time span for producing financial Financial statements are required to be produced for the period of 12 months.



Question 3

Name of the company Type Registered no Registered year Place of registration Business Owner/MD Name Telephone Business address

: Alizas Catering Sdn Bhd : Private Limited (wholly own) : 4031079IP : 2002 : Ipoh : Food Supply & Service : En. Khairuddin Alias : 057762263/0125118623 : No 6 Jalan Raja Chulan 33000 Kuala Kangsar Perak


Yes, it prepares interim financial statement. The time period used for the statements is 12

months beginning from 1st January to 31st December. Therefore, the amounts in the financial statements are those that exist on December 31 in 2002 and 2001.


The company uses accrual basis. Under the accrual method, transactions are counted

when the order is made, the item is delivered, or the services occur, regardless of when the money for them (receivables) is actually received or paid. In other words, income is counted when the sale occurs, and expenses are counted when the company receives the goods or services.

In accrual basis accounting, income is reported in the fiscal period it is earned, regardless of when it is received, and expenses are deducted in the fiscal period they are incurred, whether they are paid or not. In other words, using accrual basis accounting, you record both revenues and expenses when they occur. In short, we don't have to wait until we see the money, or actually pay money out of your checking account, to record a transaction.

3) Yes, the company uses a worksheet in preparing its financial statements. Besides, it also used spreadsheet program. The worksheets that being used by the company consist of worksheet for Income Statement and Balance Sheet. Both worksheets are essential for auditing purposes.

4) Yes the company also uses spreadsheet program. The Spreadsheet software product being use by the company is Excel (versions prior to 2007). Spreadsheets are frequently used for financial information because of their ability to re-calculate the entire sheet automatically after a change to a single cell is made.


5) Generally, the company will complete its annual statement within the reasonable period after the balance sheet date which is within 3 to 4 months of the balance sheet date. According to the standard, an enterprise should be in position to issue its financial statements within six months of the balance sheet date. Ongoing factors such as complexity of the enterprise operations are not sufficient reasons for falling to report on a timely basis. Legislation and market regulation deal with more specific deadlines. For example reporting deadlines set by Bank Negara Malaysia for licensed financial institution.

Howard J. Snavely (1969). Basic Financial Accounting Theory. In The Accounting Review, Vol. 44, No. 4 (Oct.), pp. 867-869. NY:American Accounting Association Jan Williams, Sue Haka, Mark S Bettner, Joseph V Carcello (2006).Financial Accounting. NY: Mc Graw-Hill Mohd Halim Kadri (2006) Asas Perakaunan Kewangan. Kuala Lumpur: Upena Sdn Bhd Wan Madznah Wan Ibrahim and Zaleha Abdul Shukor. (2003). Perakaunan Kewangan: Petaling Jaya: Oxford Fajar Publishing


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