Differentiate between Management Accounting, Cost Accounting and Financial Accounting
A manager accountant has to be aware of three very close, but not similar, areas in accounting : Management Accounting, Cost Accounting and Financial Accounting. The main differences lie in their final purpose and the people mainly concerned and interested in the results but they are all complementary and necessary phases for the companies.
According to the Chartered Institute of Management Accountants (CIMA), 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. In other words, Management Accounting provides the essential data which the organizations need to increase and optimize profits. It provides information to managers, that is to say people inside an organization for planning, directing and motivating, controlling and performance evaluation.
The latter is meaningful for the differentiation between Management Accounting and Financial Accounting, because even if they both rely on the same financial data, Financial Accounting reports are prepared for people outside the organization, non-management groups such as shareholders, creditors, tax authorities and regulators. Another important difference is the emphasis on summaries of the past activities whereas in management accounting aims at orientating the decisions for the future. Moreover, Financial Accounting reports require precision in the information whereas timeliness of information is required in Management Accounting (still due to the decision-making). Finally, Financial Accounting must follow Generally Accepted Accounting Principles (GAAP) in opposition to Management Accounting which has no need to follow these rules. The last