Management Accounting vs Financial Accounting

April 5, 2023
Sara Silva

All business owners know that they are required to adopt the organized accounting regime, this is a technical, social and moral practice that records, classifies and interprets all the financial movements made in a given period by an entity.

Within the concept of accounting we can distinguish two areas, financial accounting and management accounting.

Financial and Management Accounting

Financial accounting is of a mandatory character, required of all companies, be they public or private limited companies, that they present all the financial and commercial transactions that have occurred and present periodic financial statements that are as true and transparent as possible, this is part of the work done by accountants who work daily to prepare all the information so that interested parties (people outside or inside the company) can access it.

The other aspect of accounting is called management accounting, which, although optional, has great advantages when exercised.

Management accounting, formerly known as cost or cost accounting, focuses on obtaining detailed information, organized into operational reports, used only for internal evaluation, and directed to managers in order for them to make decisions, assisting in the planning and future strategy of the organization.

In a competitive market, it is essential that the company optimizes existing resources in order to survive and grow. With management accounting it is possible to know the real cost of each unit produced, serving to solve several problems in terms of productivity, and giving answers to the questions asked.

To increase profitability, does the company need to invest in new equipment? Needs to reduce its defective rate? or could entering new markets be profitable?

Management accounting presents as advantages the greater knowledge of the costs of the different sectors of the company, the possible improvement of results, and the improvement of most of the information provided to managers.

In this way, we believe that for certain types of businesses, namely in the industrial sector, management accounting can be fundamental and a great ally of financial accounting. When companies feel the need for support to give answers to some productivity problems, we suggest that they seek advice from a professional in this area so that all the potentialities of their business are maximized.

Are you curious about how management accounting works in practice? Talk to us and we will answer all your questions.

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