Financial Accounting Roles

Financial accounting roles

Davidson (1993) defines Financial accounting as a branch of accounting that involves recording and reporting financial activities of the day to day operations of a firm, this also include profit and loss account preparation, balance sheet and cash flow statements. Davidson (1993) highlights some of the following roles of financial accounting:

Management accounting roles:

Weetman (2002) defines management accounting is a process that involves preparation of both statistical and financial information used in decision making, the statements produced remains confidential and is only meant to aid in decision making, these statements unlike in financial accounting do not follow any standards, Weetman (2002) states the following roles:

–  Prepare financial      information to be used by managers to plan, this include activities

such      as providing information on pricing of products.

–  Prepare financial      information to be used by managers to control activities, this is

evident      where reports provided are used to compare the actual outcome with the        planned

outcome and therefore used in identifying problem areas.

–  Financial information         provided management accountants help in motivating employees

to achieve       set objectives.

Financial accounting roles

Differences between the two:

Weetman (1999) highlights differences between management and financial accounting, and one difference is that Management accounting reports are intended for managers while financial accounting reports are meant for external users such as investors and creditors. The other difference is that financial accounting reports the performance of a firm over a period of time while management accounting reports are aimed at helping managers to make decisions and plan activities. The other difference is that firms are required by law to prepare financial accounts but no law requires a firm to undertake management accounting, this also means that financial accounting reports are governed by accounting rules while management accounting reports do not follow rules.

References:

Pauline Weetman (1999) Financial and management accounting: an introduction. New  York:

McGraw hill

Pauline Weetman (2002) Management Accounting: An Introduction New York: McGraw hill

Sidney Davidson (1993) Financial accounting: an introduction to concepts, methods and uses,

NJ: Prentice hall