What are the different types of Accounting?
Accountancy is a vast field, which keeps on evolving. Over the past few years, accounting has expanded manifold, catering to the varied requirements of the businesses and has branched out in different types-
In the following paragraphs, we will take a closer look what is financial and management accountancy and how do they differ from each other.
What is Financial Accounting?
It is a process of determining, summarizing and reporting a number of transactions from a business to bring forth the correct financial situation and performance of an organization. This field primarily deals in preparation of financial statements in the form of balance sheets, income statements, expenses and record of cash flow. Financial accounting is carried out to present the financial health of an organization to its external stakeholders, Board of Directors, creditors and other investors. The reports are time specific in order to depict how the company has performed. In a nutshell, financial accounting caters to an audience which is outside an organization.
What is Management Accounting?
Managerial or management accounting is a field of accounting, which aims at providing financial information within the company in order to assist the managers or management in planning, controlling and decision-making. It does not use the past data; in fact it is based on the present performance, future trends and challenges. The information / report produced is usually more particularized in comparison to external usage. This is done so as to enhance and optimize matters related to finance thus aiding in the accomplishment of the company's goals and objectives.
What is the difference between financial and managerial accounting-
The primary difference between both the types of accounting is quite evident, that management accounting is presented internally whereas financial accounting caters to external stakeholders. Both have significant importance of their own position. Financial is vital for existing and potential investors, while management is crucial for managers to make current and future decisions.
The differences can be listed through the following categories –
Optional -Financial reports are legally required, whereas managerial are optional.
Format – The report in financial accounting specifically follows a particular format, whereas managerial formats are informal which varies company to company.
Proven Information -Financial reports are kept with utmost precision which is needed to support that the financial statements are correct. Managerial accounting is more about estimates and research data rather than proven records.
Focus -Financial accounting is primarily based on past data, oriented towards creation of financial statements which is to be distributed within and outside the company. Managerial accounting is mainly concerned with operational reports focussing on the present and future requirements.
Owing to its high demand in the market, Accountant jobs in both the fields are available in abundance. People working as accountants are well-paid and on an average they earn between the range 2 to 3 lakhs per annum.