What are the differences between financial accounting and management accounting? Accounting plays a very important role in making decisions in the economic or financial system. The definition of accounting itself is an information system designed to measure business activities, process data into reports, to communicate the results to management.
The main role of accounting science is to assist management tasks, especially in the monitoring and planning functions. In general, accounting deals with financial matters to the activity of recording money.
However, in its application in the business world there are various types of accounting. Each has a different role and function. Some of the most common types of accounting known by the public are financial accounting and management accounting.
What are the differences between Financial Accounting and Management Accounting?
The basic difference between financial accounting and management accounting is the reporting orientation. In management accounting, reporting is oriented to internal parties, while financial accounting reports is oriented to external parties.
Management accounting is an accounting field that deals with reporting financial information for the company’s internal parties.
Internal parties, among others
- top level company management
- mid-level enterprise management
- first-rate enterprise management
On the other hand, financial accounting is a field of accounting that presents financial reporting addressed to external parties of the company.
External parties, among others
- And other parties who are not directly involved in the operations of a company
The differences are not only in terms of reporting but also in terms of understanding, scope, benefits, and others. Whatever it is, let’s have a look.
Understanding Financial Accounting
Financial accounting is one type of accounting related to the preparation of financial statements for several outside parties, such as shareholders, suppliers, creditors, and other related parties.
The financial accounting system in general is intended to regulate various kinds of recording transactions carried out by companies or organizations to compile financial reports of transactions that occur during one management period.
Basically, financial accounting is described as a form of presenting a company’s financial statements to external parties, both in the form of balance sheets, income statements, changes in capital, to cash flows to shareholders, creditors, and investors. These matters relate specifically to the profitability and credibility of companies, suppliers, and the government.
Financial Accounting Objectives
The main function of financial accounting is to present financial information from an organization or company. The presentation of this information is generally made in the form of a report, so that related parties can see the financial condition of a company and everything that has happened in it.
Information about a company’s finances is needed, especially in management matters, because this can help make decisions, which in turn will influence and determine the state of the company going forward.
The details of the objectives of the application of this financial accounting, namely:
- To provide reliable information about a change in the net economic resources of a company that can arise from a company’s activities in order to make a profit.
- To present information about the activities, liabilities and capital owned by the company.
- To assist the parties concerned in estimating a company’s potential in an effort to generate a profit.
- Provide other important information, such as changes in the company’s economic resources and shopping activities.
- To disclose other information related to other financial statements that are relevant in meeting the needs of the users of these financial statements.
Benefits of Financial Accounting
In addition to having general and special functions, financial accounting has its own role and benefits for the parties concerned. The parties in question include shareholders, investors, creditors, suppliers, and the government.
Well, here are some of the benefits of financial accounting for the parties concerned. Among them:
- For shareholders, financial accounting can be information that allows them to assess the company’s ability to pay dividends.
- Because investment includes quite prone to risk in this area, the investor would require financial data information to assess whether the invested funds is feasible ( Feasible) or not.
- As information for creditors to assess a company’s ability to pay service fees and repay principal debts when they fall due.
- As information for suppliers to assess whether the sales bill given will be paid by the company when it is due.
- For information regarding the determination of tax policies and statistical data on national income by the government.
Financial Accounting Report Users
Users of financial accounting reports do not only include company parties. However, there are several other parties who are also users of this financial accounting report.
The following are users of financial accounting reports described in more detail:
Investors or shareholders of course need information in an effort to determine whether an investment is worth giving or not. Considering that investors are quite risky activities in this field. Investors also need information that allows them to assess the company’s ability to pay dividends. Such information can be obtained from the details of existing financial accounting reports.
Employees need information about the stability and profitability of the company. This relates to the way they assess a company’s ability to provide remuneration, post-employment benefits, and other employment opportunities.
Financial accounting reports can be used by lenders to decide whether existing loans and interest can be paid when they fall due.
- Suppliers and other business creditors
Financial statements are used by this group to obtain information that enables them to decide whether amounts owed will be paid as they fall due.
- Customers The
customers referred to here are interested parties and are involved in long-term agreements or depend on the company.
- Government The
government and its subordinates need information to regulate company activities, determine tax policies, and as a basis for the preparation of national income statistics and other statistics.
- Society The
community can be helped in seeing the trend and the latest developments in the prosperity of the company and its series of activities through the financial accounting reports of a company.
Scope of Financial Accounting
Broadly speaking, the report of financial accounting presents financial information of a company as a whole, starting from the balance sheet (statement of financial position) which presents assets, income statement which presents the results of activities of the company as a whole, liabilities (liabilities), capital, cash flows. and others.
Because the purpose of financial statements is used by parties outside the company, in general the information contained in the report is in the form of a summary while still describing the company’s overall financial condition.
Financial Accounting Timeline
Financial accounting reports based on the time span are less flexible. In addition, the period only covers certain periods, such as an annual period (annual) , half a year (interim) , a period of one quarter, or a period of one month.
Financial Accounting Information Focus
The focus of financial accounting information is centered on past information. The focus of the information as a whole can provide an overview of the form of management accountability of a company for the management of its company funds.
Types of Financial Accounting Information
Financial accounting basically only measures financial management data based on the applicable Financial Accounting Standards (SAK).
This is quite different from management accounting which does not only measure finance and operations, but also includes information on physical measurements of processes, suppliers , technology, competitors, and also customers.
Nature of Financial Accounting Information
The nature of information from financial accounting can be described in a high level of accuracy, objective, accurate, and can be verified. This is because the users are parties from outside the company who use these financial statements as consideration in making decisions.
Companies also sometimes use the services of third parties who are free of interest, namely auditors, to obtain a level of accuracy and opinion about the company’s financial statements.
Understanding Management Accounting According to Experts
If financial accounting is usually used by people outside the company or organization, management accounting is used by people within a company or organization. For clarity, here are some definitions of management accounting according to experts.
- Halim and Supomo
Halim and Supomo stated that management accounting is an activity that produces financial information in management as a basis for making decisions in carrying out the management function.
According to Mulyadi, management accounting is a presentation of financial information produced by the type of management accounting and utilized by the entity’s internal users.
- Charles T. Homgren
According to Charles T. Homgren, management accounting is a process of identification, accumulation, measurement, analysis, interpretation, preparation, and communication of information that can assist executives in meeting organizational goals.
- Hariadi (2002)
Hariadi stated that management accounting is a process of identification, measurement, collection, analysis, recording, interpretation, and reporting of economic events in a business entity which aims to enable management to carry out the functions of planning, control and decision making.
- Abdul Halim and Bambang Supomo
According to Abdul Halim and Bambang Supomo, management accounting is an activity or process that produces financial information for management in making economic decisions in an effort to carry out management functions.
Application of Management Accounting
Broadly speaking, management accounting presents a number of information also in the form of financial statements, but is more related to historical data in carrying out the management process which includes many things, ranging from planning, organizing, directing, controlling and evaluating work.
Furthermore, the existing financial statements will be submitted to the relevant parties for further analysis. These parties consist of top management, financial managers, production managers, and marketing managers.
These parties take care of several aspects of the company related to the fields of responsibility. In the analysis process itself, an accurate analysis is needed so that the management can make the right decisions for the company.
Therefore, management accounting financial reports must be made more detailed and detailed so that the information provided to superiors can be as detailed as possible.
Management Accounting Function
The main function of management accounting is to present data and information related to historical data for management. The management accounting process itself consists of planning, organizing, controlling, directing, and evaluating performance. The following is a description of the management accounting function in more detail.
- As a Support for the Achievement of Company Goals
Basically, management accounting functions as a guide in planning operational activities related to the budget according to the basic concept of budgeting. This report contains costs that must be incurred for core production activities to overhead costs that must be paid to support all these operational activities .
- As a means to identify and measure performance
, management must of course identify, measure, and report financial information to the directors and company owners in the form of systematic, transparent, and detailed financial reports that have been prepared by the management accounting department. This will determine the location of the central point of the parties in an organization or company. For example, the calculation of product costs, the cost of an activity, and the costs of each department.
- As a report presenter in a single business unit,
the management must also carry out a management process which includes the planning, organizing, directing and controlling of costs and prices. Management accounting can assist companies in maintaining and controlling company resources.
- As a data provider for increasing the number of sales,
management accounting generally provides internal data that is quite needed by the company so that it can cause an increase in the number of sales. the whole company.
- As a controller of the use of company resources
Management accounting can assist management in controlling the utilization of existing financial resources in company activities more efficiently and effectively. Management accounting also plays a role as controller of integrated cooperation with other functions, such as research and research, production , marketing, to human resources.
Scope of Management Accounting
The scope of management accounting tends to be narrower, where the scope is no longer focused on the company as a single entity but in more detail.
Because the scope of information aims to report certain parts of the company, such as production, marketing, and others. However, the complexity of the scope of financial information produced by Management Accounting will be in line with the level of management involved in the decision-making process.
However, in its application management accounting does not only rely on one discipline, namely accounting, but also applies management disciplines in an effort to overcome and manage company resources and time.
Management accounting also uses social psychology disciplines, especially in the process of estimating, forecasting and forecasting for product sales and human resource control.
Management Accounting Conclusion
Broadly speaking, management accounting has a focus on providing financial information for the needs of the company’s internal parties or management.
Management accounting presents financial statements that are prepared in such a way as to produce information that is useful in making decisions by management more effectively, which can be in the form of planning and controlling operational activities and calculating costs.
The information generated from management accounting will be used as evaluation material and a means of making decisions for a company.
Management accounting produces information that will help management, such as managers, executives, sales , administrative employees, or supervisors to make decisions related to company policies, both for planning, organizing, directing, and controlling, as well as making decisions related to policies in company and regarding the company’s lifetime.
Management accounting will always collect relevant information in decision making and is an estimate because decision making will always involve the future of the company.
Examples of Financial Accounting Books for Vocational High Schools
One of the books that can be used as a companion in understanding accounting and institutional finance is the Financial Accounting book.
Although this book is specifically for SMK/MAK students, the scope of the discussion in this book is quite general and can be used by the wider community.
This book discusses about the accounting and financial systems of institutions. Several types of accounting and their classification will be described in this book.
In addition, because the discussion of accounting revolves around the preparation of financial statements, this book offers an easy method of recording financial transactions of an institution. The financial statements will be used by the relevant institutions or companies in the decision-making process.