Engineer

First of all, I am going to describe the definitions of Costing, Management Accounting and Financial Accounting. And later on, I am going to find out what are the differences and similarities of them.

Definition of Management Accounting:

The process of identifying, measuring accumulating, analyzing, preparing, interpreting and communicating information that helps managers fulfill organizational objectives.

Definition of Financial Accounting:

Financial Accounting may be defined as the process of designing and operating and information system for collecting, measuring and recording an enterpriseЎЇs transactions, and summarizing and communicating the results of these transactions to users to facilitate making financial/economic decisions. (Reference 1)

Differences among of these 3:

Internal Accounting Information

External Needs Internal Needs

(Figure 1)

From figure 1, we can see Management Accounting and Cost Accounting are almost similar, because what they do are all for internal use. (Reference 2) Below I am going to show the Differences between Management Accounting (MA)/Cost Accounting (CA) with Financial Accounting (FA).

Primary Users: MA and CA, the primary users are the organization managers at various levels, the information is private and confidential, also mostly internal users only. FA, the primary users are outside parties such as investors and government agencies but also organization managers (for financial analysis and comparison). (Reference 3)

Freedom of Choice: For MA and CA, there is no constraints other than costs in relation to benefit of improved management decisions. But for FA, it was constrained by Generally Accepted Accounting Principles (GAAP). (Reference 4)

Time Focus: MA and CA are concerned with future orientation, formally use of budgets as well as historical records. eg: using budget performance versus actual performance. But for FA, it concern with past orientation, such as historical evaluation. Eg: 1999 actual performance VS 1998 actual performance. (Reference 5)

Above, I have shown few of the differences with these 3, and there are still couples of differences such as Behavioral Implications, Time Span, Reports, and Verification process.

Similarities among of these 3:

Among of these 3, they are similar at least in at 2 ways.

First: they are relying on the accounting information system. The reason for the above statement: it would be a total waste of money to have two different data-collecting systems existing side by side. For this reason, MA and CA make use of routinely generated FA data, although it they are expanding on and add to these data. (Reference 6)

Second: they are relying heavily on the concept or responsibility, or stewardship. FA is concerned with stewardship over the company as a whole, MA and CA is concerned with stewardship over its parts, and this concern extends to the last person in the organization who has any responsibility over cost. (Reference 7)

Above, I have shown the similarities among of these 3. therefore the relationship of these 3 I think we can see clearly.

2. ÐŽoFinancial Accounting looks behind, whilst Management Accounting looks aheadÐŽ± . Do you agree with this statement? Discuss.

There is no doubt that financial accounting and management accounting are related. They are both concern with the companyЎЇs financial issues and in effect, from a responsibility accounting point of view, financial accounting can be viewed as being the apex, with managerial accounting filling in the bulk of the pyramid underneath. (Reference 8)

Generally it is categorized that Financial Accounting looks behind while Management Accounting looks ahead because for Financial Accounting, there is a statutory requirement for public companies to produce annual financial accounts regardless of weather or not management regards this information should be produced. This requirement is statutory although the benefit from the use of the information by management is lower the cost of collecting it. The financial report of the company is achievable only by reviewing the companyЎЇs books, which are the ledgers and journal at the end of