Difference between Management Accounting, Cost Accounting and Financial Accounting
MANAGEMENT ACCOUNTING – In simple words management accounting can be defined as that tool that provides accounting information to carry out management activities such as planning, controlling, evaluating, and decision making. It helps the managers in identifying problems, formulating strategy, decision making optimizing the use of resources, planning and controlling.
According to ICWA of India management accounting is a system of collection and presentation of relevant economic information relating to an enterprise for planning, controlling and decision making.
Features of Management Accounting
Useful in decision making
Internal use of information
FINANCIAL ACCOUNTING – Financial accounting is the systematic process of maintaining business transactions by the organization in the various books of accounts for preparing financial statements.
Features of financial accounting
COST ACCOUNTING – Cost accounting is the process of determining the cost of goods and services. It involves recording costs, classification of costs, allocation of various expenditure and creating financial statements. This data is used in financial accounting.
Features of cost accounting
Provides data to management for decision making and budgeting for the future.
Helps in establishing certain standard cost and budgets
It is a subfield in accounting. It is the process of accounting and classification of costs.
Distinguishing features of Management Accounting, Cost Accounting and Financial Accounting
Users of accounting information
Management accounting is for providing information to managers, i.e. internal users
This accounting information is fort external users i.e. shareholders, creditors, banks, public, etc.
Cost accounting provides information about the cost of production to enable the management to control cost.
Aims at analyzing whether the production of a certain product in a certain quantity is to be carried on.
Aims at finding the profitability of a business concern.
Aims at finding costs and finding ways of reducing the cost.
Periodicity of reporting
On a continuous basis i.e. weekly, monthly, even daily basis
At the end of the year
On a continuous basis
Management accounting is purely voluntary.
Financial accounts are prepared under company law, income tax law, etc.
Cost accounting is purely voluntary.
It is not based on double-entry system.
It is based on double-entry system.
Based on all the facts and information related to cost involved.
Management accounting is not bound by any try accounting standards.
Financial accounts are to be prepared as per accounting standards issued by the Institute of Charted Accountant of India.
It is based on certain formulas and techniques.
Relationship between Management Accounting, Cost Accounting and Financial Accounting
Financial accounting – Preparing Profit and Loss A/C and Balance Sheet Cost accounting – Analyzing cost for control and maximizing efficiency Management accounting – Assisting management for planning, decision making and control.