What Are the Similiarities Between Management Accounting & Financial Accounting?

1. Management accounting and financial accounting have different goals. A management accountant collects data and conducts research to provide managers of a company with financial information so they can make budget decisions. A financial accountant collects data to create reports for groups outside the company, such as federal regulators and investors. Both types of accounting include some common topics.

Accounting Information System

2. Accounting information system knowledge is important for both types of accountants. The management accountant needs to use an accounting information system to present data to managers, while the financial accountant uses the system to audit financial information to make sure it is correct. Many companies no longer use paper records to monitor financial transactions, so both types of accountants need to understand how an accounting information system operates.

Presentation Factors

3. Information must be relevant and timely. The management accountant needs to make sure that the information that managers receive is useful when making budgetary decisions, and it arrives early enough for the managers to use it to create a budget. The financial accountant needs to make sure that a reasonably knowledgeable investor or a government regulator has sufficient information to make a decision, and that the financial report is available on time according to federal law.

Comparability

4. Information must allow the user to make a comparison between different firms. The management accountant focuses on benchmarks, so the managers know how well a company's internal processes function compared to its competitors. A financial accountant needs to create a report that allows the user to make a comparison with a report from a different company, since a financial report should include data that allows an investor to decide which company is best to invest in to receive the greatest return.

Internal Controls

5. Internal controls are necessary in both types of accounting. The management accountant helps managers design and implement internal controls, ensuring that the company does not have money or assets stolen. A financial accountant checks internal controls during an audit, making sure that the internal controls are effective and that the company is following its established cash management guidelines.

Training and Certification

6. Both types of accounting often require the accountant to undergo formal training at a university. An undergraduate accounting program may not require a student to specialize in either management or financial accounting, and frequently includes courses from both areas. Both management and financial accountants commonly hold the Certified Professional Accountant, or CPA, designation, which requires the applicant to take undergraduate business and accounting courses, but does not require specialization in management or financial accounting. 

7. Learning Basic Accounting Principleshe 

   main principles of accounting will help you understand the relationship between accounting and business transactions. Learn the basic accounting principles for how they are applied to financial statements.

   1. Separate the business owner's personal transactions from the business.
      
   2. 2
      Record all economic activity, including cash transactions, in U.S. dollars only. Ignore inflation and effects on the dollar value over time.
      
   3. 3
      Estimate amounts of income relevant to the time period for 3 months ending at March 31. For example, property taxes will not be known until December of the same year. You will have to estimate what your taxes will be. Ensure that you display the time period in the header of each income statement. The time period will be 1 week ending in the month indicated on the statement, 1 month ending on the month indicated on the statement, 3 months ending on the statement or 1 year to the month indicated on the statement.
      
   4. 4
      Locate the historical cost amounts on your company's income statement. Here you will interpret the costs as cash spent regardless of the time when an item or service was purchased.
      
   5. 5
      Determine the value of long-term assets. Aside from bonds and stocks, assets do not tell you how much a company will earn by selling the assets. Contact an appraiser to determine the value of a company's long-term assets.
      
   6. 6
      Use the going concern principle to determine if a company will continue to exist. Accountants are required to disclose information regarding a company that will not last long. Utilizing the going concern principle, a company can defer its prepaid expenses for later accounting periods.
      
   7. 7
      Match expenses with revenues. Companies use the matching principle of accounting to report commissions upon the time sales were made, rather than reporting when commissions were paid.
      
   8. 8
      Learn the revenue recognition principle of accounting. Report all earnings regardless if your company receives no money at the time of recording.
      
   9. 9
      Utilize the principle of materiality. If an amount of revenue is insignificant, you may disregard the principles of accounting. To determine if revenue is insignificant, consult a professional accountant. Only an experienced accountant can decide which principles may be disregarded.
      
   10. 10
       Use the principle of conservatism to decide between more than one way to report an item. Choose the method that will result in less net income. Consult an experienced accountant to determine which method is best.